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You are managing a global fund denominated in British Pound. Your fund will be selling US stocks worth USD 200 million in 6 months. The

You are managing a global fund denominated in British Pound. Your fund will be selling US stocks worth USD 200 million in 6 months. The following information is available for hedging currency risk.

UK borrowing rate 4%

UK deposit rate 2%

US borrowing rate 5%

US deposit rate 3%

Current spot 1.2257 1.2280

6-month forward 1.2416 1.2453

i. Calculate how much (in British Pound) your fund will receive from selling the US stocks using foreign market hedge. (2 marks)

ii. Calculate how much (in British Pound) your fund will receive from selling the US stocks using money market hedge. (8 marks)

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