23. Consider a Danish company that has a substantial operation in the U.S. and receives cash...

 

Transcribed Image Text:

23. Consider a Danish company that has a substantial operation in the U.S. and receives cash flows in U.S. dollars. It anticipates the receipt of $100 million in one year. The current forward rate for its current, the Danish krone (DKK), is 6.6814 per USD. Explain how it would use a forward foreign currency hedge to eliminate the exchange rate risk. 24. A Peruvian company buys raw materials from a European company and pays in euros. It anticipates that in six months it will buy 20 million units of the material and will pay a price of €2.55 per unit. The current six-month forward exchange rate is that one Peruvian sol = 0.2621 euros. Explain the risk faced by the Peruvian company and how it can hedge that risk. 23. Consider a Danish company that has a substantial operation in the U.S. and receives cash flows in U.S. dollars. It anticipates the receipt of $100 million in one year. The current forward rate for its current, the Danish krone (DKK), is 6.6814 per USD. Explain how it would use a forward foreign currency hedge to eliminate the exchange rate risk. 24. A Peruvian company buys raw materials from a European company and pays in euros. It anticipates that in six months it will buy 20 million units of the material and will pay a price of €2.55 per unit. The current six-month forward exchange rate is that one Peruvian sol = 0.2621 euros. Explain the risk faced by the Peruvian company and how it can hedge that risk.

Answer rating: 100% (QA)

23 In order to eliminate the exchange rate risk associated with receiving 100 million in US dollars ... View the full answer