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Manager would hedge this position with a money market hedge

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Assume that your company expects to receive a GBP 2,000,000 payment one year from now. The one-year actual forward rate of the USD/GBP is F1USD/GBP = 1.42 and the synthetic one-year forward is FYIUSD/GBP = 1.40. Which of the following statements is true?

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You can hedge this natural short position in GBP by entering a one-year long forward GBP contract. 

Based on a comparison between the actual and synthetic forward rates, a savvy financial manager would hedge this position with an actual forward contract. 

Based on a comparison of the forward rates, a savvy financial manager would hedge this position with a money market hedge. 

You can hedge this natural long position in GBP by entering a one-year long forward GBP contract.

Reference no: EM132465972

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