Candidates were asked here to calculate the dollar income from a forward market hedge and a money market hedge, indicating which would be financially preferred. This part of question 3 was often answered well and many candidates gained full marks.

Mistakes that were occasionally made included:

• Multiplying by the exchange rate, instead of dividing. 
• Using annual interest rates instead of calculating quarterly ones. 
• Using the forward rate when the spot rate was called for, and vice versa. 
• Leaving the money market hedge incomplete, thereby seeking to incorrectly compare cash flows at two different points in time.