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Boeing imported a Rolls-Royce jet engine for £10 million in one year. The market conditions are...

Boeing imported a Rolls-Royce jet engine for £10 million in one year. The market conditions are given as follows: i$=4.0%, i£ = 3.0%, S0 = $1.45/£, F1 = $1.46/£.

  1. Set up a money market hedge
  2. Show the amount of dollar gains or losses the money market hedge incurs compared to a forward hedge. Be sure to use the parity conditions to explain why the money market hedge gains or losses.

Please keep at least two decimal points. If not, one point will be taken off.

Interest Rate Parity formula: F($/£) = S($/£)*[(1+i$)/(1+i£)

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jeff jeffy answered 4 months ago
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