Given the information, answer the following questions. Spot rate ( $ /€ ) 1.11 6

Question

Given the information, answer the following questions.

Spot rate ($/€)1.11

6-month forward rate ($/€)1.1264

6-month U.S. dollar interest rate 6.00%

6-month euro interest rate 3.00%

1.compute the 6-month forward premium or discount for euro.

2. Barclays sells €500 million forwards for dollars for delivery in six months. Analyze risk that Barclays is facing and illustrate a possible solution (swap transaction) to hedge such risk using the following chart.

The chart consists of filling in blanks for Prepare(buy)€ amount. Deliver € amount. Recieve $ amount. Borrow $ amount and Repay $ amount. With arrows directing towards each forming a square of sorts. Please show me step by step solution for each number amount.

Explanation / Answer

1.

2.

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