(Topic 2) A U.S. firm acquires a large U.K. manufacturer that generates high levels of cash flow in its local currency. The purchase is denominated in British pounds and is financed through the…

• (Topic 2)

A U.S. firm acquires a large U.K. manufacturer that generates high levels of cash flow in its local currency. The purchase is denominated in British pounds and is financed through the issuance of 10-year, 7.5% U.S. dollar bonds. The U.S. firm will rely entirely on the U.K. manufacturer's cash flows to fund the interest payments on the bonds. What derivative instrument would help the U.S. firm manage its FX exposure?