Please use information to answer the question below: A US firm's expected Accounts Payable in UK due in 1 year Current Spot Rate (SR) for GBP Annual interest rate in US (Rh) Annual interest rate in UK (RF) GBP 8,000,000 USD 1.50 5% 8% If the US firm wants to set up a money market hedge for their GBP payables, today it should: O Borrow GBP from UK bank, sell GBP for USD at current spot rate, invest USD in US bank. Borrow USD from US bank, buy USD with GBP at current spot rate, invest GBP in UK bank. Borrow USD from US bank, buy GBP with USD at current spot rate, invest GBP in UK O Borrow GBP from UK bank, buy GBP with USD at current spot rate, invest USD in US bank. bank.
Please use information to answer the question below: A US firm's expected Accounts Payable in UK due in 1 year Current Spot Rate (SR) for GBP Annual interest rate in US (Rh) Annual interest rate in UK (RF) GBP 8,000,000 USD 1.50 5% 8% If the US firm wants to set up a money market hedge for their GBP payables, today it should: O Borrow GBP from UK bank, sell GBP for USD at current spot rate, invest USD in US bank. Borrow USD from US bank, buy USD with GBP at current spot rate, invest GBP in UK bank. Borrow USD from US bank, buy GBP with USD at current spot rate, invest GBP in UK O Borrow GBP from UK bank, buy GBP with USD at current spot rate, invest USD in US bank. bank.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 17
Please use information to answer the question below:
A US firm's expected
Accounts Payable in UK
due in 1 year
Current Spot Rate (SR) for
GBP
Annual interest rate in US
(Rh)
Annual interest rate in UK
(Rf)
GBP 8,000,000
USD 1.50
5%
8%
If the US firm wants to set up a money market hedge for their GBP payables, today it should:
O Borrow GBP from UK bank, sell GBP for USD at current spot rate, invest USD in US bank.
Borrow USD from US bank, buy USD with GBP at current spot rate, invest GBP in UK bank.
Borrow USD from US bank, buy GBP with USD at current spot rate, invest GBP in UK bank.
O Borrow GBP from UK bank, buy GBP with USD at current spot rate, invest USD in US bank.
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