money market hedge

Money Market Hedge[/u]

If a Debtor

(1)Borrow x $ now
($ Loan Principal + Interest cancelled out by future $ debtor receipt)

(2)Convert x $ now (to £)
(Borrow $ – to convert now – to place on Deposit in £)

(3) Add Deposit Interest (£)

If Creditor

(1) Deposit x $ now
($ Deposit Principal + Interest pay/cancel out future $ creditor payment)

(2) Convert x £ now (to $)
(Borrow £ – to convert to $ now – to place on Deposit in $)

(3) Add Loan Interest (£)

Hope this now makes all of the past F9 Exam questions a little easier for you now, Peter