Central Valley Transit Inc. (CVT) owes Mexican Peso(MP) 8 million in 30 days for a recent...

 

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Central Valley Transit Inc. (CVT) owes Mexican Peso(MP) 8 million in 30 days for a recent www. www wwww shipment from Mexico. It faces the following interest and exchange rates: windm wwwwww Spot rate: Forward rate (30 days) 30-day put option on dollars at wwwwww MP 19.9/$ MP 20.15/$ MP 19.87/$ MP 20.1/$ 1% premium 3% premium 30-day call option on dollars at U.S. dollar 30-day investing interest rate (annualized): 7.5% wwwww U.S. dollar 30-day borrowing interest rate (annualized): 9.5% Peso 30-day investing interest rate (annualized): 15% Peso 30-day borrowing interest rate (annualized): 17% Cost of capital 10% www Based on the information provided above: wwwww www wwwww.wwwwwwww a) Calculate the cost of each hedging alternative available to CVT. b) Based on your findings in part (a), which hedging alternative(s) would you recommend to CVT? Which factors should CVT consider in making its final decision on choosing ww wwwwwwww the best hedging alternative? www.www Central Valley Transit Inc. (CVT) owes Mexican Peso(MP) 8 million in 30 days for a recent www. www wwww shipment from Mexico. It faces the following interest and exchange rates: windm wwwwww Spot rate: Forward rate (30 days) 30-day put option on dollars at wwwwww MP 19.9/$ MP 20.15/$ MP 19.87/$ MP 20.1/$ 1% premium 3% premium 30-day call option on dollars at U.S. dollar 30-day investing interest rate (annualized): 7.5% wwwww U.S. dollar 30-day borrowing interest rate (annualized): 9.5% Peso 30-day investing interest rate (annualized): 15% Peso 30-day borrowing interest rate (annualized): 17% Cost of capital 10% www Based on the information provided above: wwwww www wwwww.wwwwwwww a) Calculate the cost of each hedging alternative available to CVT. b) Based on your findings in part (a), which hedging alternative(s) would you recommend to CVT? Which factors should CVT consider in making its final decision on choosing ww wwwwwwww the best hedging alternative? www.www

Answer rating: 100% (QA)

a Calculation of the cost of each hedging alternative 1 Forward Contract Forward rate MP 2015 Spot r... View the full answer