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Hi Sir,
Why in the answer of part a, when calculating the six-month forward exchange rate and the money market hedge, interest is calculated on the interest payment of a full year instead of on interest payment for 6 months (10% divided by 2) please?
The question says that the interest is payable at the end of each year.
So the amount of interest is the full interest for the year.(It is only when doing a money market hedge that we are borrowing and depositing for 6 months and therefore use just the six month borrow and deposit rates.)
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