A British company needs 1,000,000 pounds for one year. It decides to borrow US dollars and convert
Fantastic news! We've Found the answer you've been seeking!
Question:
A British company needs 1,000,000 pounds for one year. It decides to borrow US dollars and convert the dollars to pounds. The spot rate today is $1.25/pound, and the spot rate 1 year from today is $1.32/pound. The 1-year US interest rate is 4% and the 1-year UK interest rate is 4%.
a. Doing a forward is the best strategy because the interest rates are the same
b. The “all-in” cost of borrowing in pound is 4%
c. The “all-in” cost of borrowing in pound is negative
d. Doing a forward hedge is not the best strategy because the interest rates are the same
Related Book For
Posted Date: