An FI Has a 1-Year 8-Percent US$160 Million Loan Financed

Multiple Choice

An FI has a 1-year 8-percent US$160 million loan financed with a 1-year 7-percent UK£100 million CD. The current exchange rate is $1.60/£. Assume that the hedge was placed as indicated in a prior question, and that the BP futures contract is trading at $1.62/£. Assume the futures contract has some days remaining to maturity. What will be the gain or loss on the hedge if it is unwound at this price?

A) $4,280,000 loss.
B) $4,000,000 loss.
C) $4,280,000 gain.
D) $4,000,000 gain.
E) $6,400,000 gain.