What is the total value of the bank portfolio

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Reference no: EM131964159

Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 4% in the US and 3% in the UK. A bank is long a futures contract to buy 1,000,000 pounds for $1.8 million in one year.

a. If the spot exchange rate decreases by $0.10, what is the dollar loss on the futures position?

b. In order to hedge its futures exposure, should the bank borrow in the UK or invest in the UK? How much?

c. If the bank hedges the futures contract, what is the total value of the bank’s portfolio?

Reference no: EM131964159

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