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Fully hedge against the pound exposure

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Reference no: EM132530992

An FI has a 1-year 8% US $160 million loan financed with a 1-year 7% UK GBP 100 million CD. The current exchange rate is $1.60/GBP. If the current rate for one-year British pound futures is at $1.58/GBP, how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk). Size of 1 British pound futures contract (Nf = 1) equals GBP 62,500.

Reference no: EM132530992

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