Remember the saying that hedging also is a bet.Mark all of the following situations in which there should be a hedge!

1. You are importing Italian sports cars,have to make payments in Euros, and expect the Euroto strengthen.

2. An insurance company will have to make large payments to the survivors of a natural disaster.It isplanningto finance the payments by the future sale of a bond held in its portfolio. The insurance company expects that interest rates will fall in the short run.

3. Ian Ackerman has made a large short bet against a pharmaceutical.The stock market is in an expansion phase.

4. The city of Boston is planning toissue a new bond with a 5% coupon to finance the construction of a new city hall. Currently we are in the planning phase. The mayor and treasurer expect the Fed to raise interest rates in the short term.