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in chapter 22 example 6 to get the amount to be borrowed, $5M is divided by 1.0145. we get the 1.0145 by dividing the US borrowing rate by 4 i.e 5.8%/4 and then we add one:
5.8% divided by 4 = 1.45% ( 0.0145 in terms of decimal)
we add one: 0.0145 + 1 = 1.0145what I want to know is why we divide it by 4??????
Because the 5.8% is the annual borrowing rate but the transaction needs to be hedged for only 3 months = 1/4 of a year.
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