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7. Assume that you are importing German transformers and that vou face the following: n: 6% nS($/aske) 1.5000o S/aske) 1.5400 How would you hedge? Would you buy euro forward or would you borrow dollars, buy euro spot, and invest in euro for six months? a. b. Would it make any difference in your choice of hedging technique if you already had dollars that were earning 5 percent?

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6 m forward rate using interest rate parity 1.514 We should borrow dollars and buy the euro as forward rate using IRP is less. b) Revised forward rate 1.507 No it would not make any difference 12 136 m forward rate using interest rate parity 4 We should borrow dollars and buy the euro as forward rate using IRP is less. 7 b) Revised forward rate 10 No it would not make any difference 12

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