DKNY owes Mex$7 million in 30 days for a recent shipment from Mexico. It faces the following interest and exchange rates:

Suppose that DKNY expects the 30-day spot rate to be Mex$11.25/$. Should it hedge this payable? What other factors should go into DKNY’s hedging decision?

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Spot rate: Forward rate (30 days): 30-day put option on dollars at Mex$ 10.83/$: 30-day call option on dollars at Mex$ 11.03/$: U.S. dollar 30-day interest rate (annualized): Peso 30-day interest rate (annualized): Mex$10.93/$ Mex$11.03/S 1% premium 3% premium 7.5% 15%