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Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 4% in the US and 3% in the UK. A bank is
Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 4% in the US and 3% in the UK. A bank is short a futures contract to sell 1,000,000 pounds for $1.9 million in one year. Which of the data above suggests that the bank will need to borrow dollars in the U.S. to hedge its position?
a. Futures exchange rate is higher than spot
b. Interest rate in the U.S. is higher
c. Sufficient information is not provided
d. The bank is short the futures contract
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