International Finance: Putting Theory Into Practice

(Chris Devlin) #1

13.5. TEST YOUR UNDERSTANDING: CONTRACTUAL EXPOSURE 527


(g) The term structure is flat right now (at 5 percent p.a., compound), but
is uncertain in the future. Consider the spot hedge of part (c). If, in-
stead of FRAs, duration is used to eliminate the interest risk, how should
Cloghopper proceed?
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