Compare the analyses in Exercises 4 and 5 with a rolled-over money-market hedge. That is, what would

Question:

Compare the analyses in Exercises 4 and 5 with a rolled-over money-market hedge. That is, what would have been the result if you had borrowed waf for six months (with conversion and investment of fly-the money-market replication of a six-month forward sale), and then rolled-over (that is, renewed) the waf loan and the fly deposit, principal plus interest?

Use the following time-0 data for the fictitious currency, the Walloon Franc (waf) and the Flemish Yen (fly), on Jan. 1, 2000. The spot exchange rate is 1 waf/fly.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...