Now that Hurd has more specifically located the source of the economic exposure, Unit B$,$ it is considering ways to hedge this exposure.

Since Unit B finances some of its operations, one idea being considered by Hurd management is a change the financial structure of Unit B to a mix of

financing in dollars and financing in pounds.

Note: Assume the interest rate on pounds is approximately equal to the interest rate on dollars.

If the pound appreciates, Unit B will need

dollars for loan payments, which would partially offset the effect of this appreciation on the

revenue of Unit B$.$