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/£. If the current (spot) rate for one-year British pound futures is currently at $1.58/£ and each contract size is £62,500, how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk) .

A) Sell 1,600 BP futures.
B) Buy 1,600 BP futures.
C) Sell 1,712 BP futures.
D) Buy 2,560 BP futures.
E) Buy 1,712 BP futures.