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Find what forward transaction does need to engage

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Reference no: EM132661376

Suppose that a U.S. FI has the following assets and liabilities:

Assets

$10 million cash (in dollars)

$100 million U.S. loans (one year) (in dollars) (12%)

$100 million equivalent UK loans (one year) (loans made in pounds) (10%)

Liabilities

$200 million U.S. CDs (one year) (in dollars) (5%)

$10 million borrowed funds (in dollars) (6%)

The current spot exchange rate is $1.5/£

Problem 1: If this FI hedges this foreign exchange risk using forward contract, what forward transaction does it need to engage (e.g., sell or buy pounds, forward period, and forward amount)?

Reference no: EM132661376

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