Reference no: EM133058283

Assume the following information:

360-day U.S. interest rate = 4%

360-day British interest rate = 5%

360-day forward rate of British pound = $2.00/£

Spot rate of British pound = $2.02/£

Hampshire Co. has account payables of 200,000 British pounds in 360 days. It wishes to hedge this payables position.

A. Set up a forward market hedge for the above account payable.

B. Set up a money market hedge for the above account payable.

C. Compare the above hedges (in terms of costs). Which hedge would you recommend?

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