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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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The finance director of a London-based insurance firm expects to receive GBP 800,000 in three years. The plan is to invest this amount for an additional year at the one-year forward rate applicable at that time. Currently, the 3-year spot rate is 1.5%, and the 4-year spot rate is 2%, both with continuous compounding. Using this information, calculate the interest revenue the company will earn during the fourth year from this investment. What steps should the finance director take immediately to lock in this rate of return?

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