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Your employer has a subsidiary in Brazil which has high interest rates. Your firm considers borrowing dollars and hedging the exchange rate risk by selling
Your employer has a subsidiary in Brazil which has high interest rates. Your firm considers borrowing dollars and hedging the exchange rate risk by selling the Brazilian real forward in exchange for dollars for the periods in which it would need to make loan payments in dollars. Assume that forward contracts on the real are available. What is the limitation of this strategy?
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