A company needs to purchase equipment from a foreign supplier in six months' time for $500,000. It faces a short-term cash deficit and must borrow to fund any hedging strategy. Given: Spot rate = $1.25 per domestic currency unit (DCU); 6-month forward rate = $1.20 per DCU; Domestic borrowing rate = 8% p.a.; Domestic deposit rate = 5% p.a.; Foreign borrowing rate = 6% p.a.; Foreign deposit rate = 4% p.a. Which hedging strategy results in the lowest cost to the company?

Which TWO of the following statements correctly describe 'basis risk' in currency futures trading? 1. It is the difference between the spot exchange rate and the currency futures exchange rate. 2. It is the possibility that the movements in the currency futures price and spot price will diverge. 3. It is the difference between fixed and floating interest rates. 4. It is one of the primary reasons for an imperfect currency futures hedge.

Regarding interest rate risk management for a company, which of the following statements is correct?