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Suppose S 0 / $ = 1 . 0 5 / $ , F 1 / $ = 1 . 2 5 / $ ,

Suppose S0/$ =1.05/$, F1/$ =1.25/$, i=20%, and i$=4%. You are to pay 200,000 in one year. You want to fix the amount you are receiving in dollars to avoid foreign exchange risk. Form a forward market hedge at t =0 and t =1 year.

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