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Suppose that you are a U . S . - based importer of goods from the United Kingdom. You expect the value of the pound
Suppose that you are a USbased importer of goods from the United Kingdom. You expect the value of the pound to increase against
the US dollar over the next days. You will be making payment on a shipment of imported goods in days and want to hedge
your currency exposure. The US riskfree rate is percent, and the UK riskfree rate is percent. These rates are expected to
remain unchanged over the next month. The current spot rate is $
Required:
a Whether you should use a long or short forward contract to hedge the currency risk.
b Calculate the noarbitrage price at which you could enter into a forward contract that expires in days.
c Move forward days. The spot rate is $ Interest rates are unchanged. Calculate the value of your forward position.
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Required B Required
Move forward days. The spot rate is $ Interest rates are unchanged. Calculate the value of your forward position.
Note: Do not round intermediate calculations. Round your answer to decimal places.
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