An importer in the US has 10,000 euros payable in one year. She would like to...
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An importer in the US has 10,000 euros payable in one year. She would like to use a money market hedge to reduce her exchange rate risk exposure rather than use a forward contract. The spot exchange rate is $1.20 per euro. The interest rate in the US is 4% and the interest rate in Europe is 1%. How much will she need in dollars today to create a money market hedge? An importer in the US has 10,000 euros payable in one year. She would like to use a money market hedge to reduce her exchange rate risk exposure rather than use a forward contract. The spot exchange rate is $1.20 per euro. The interest rate in the US is 4% and the interest rate in Europe is 1%. How much will she need in dollars today to create a money market hedge?
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To create a money market hedge the importer needs to invest an amount in dollars to... View the full answer
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Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
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