DKNY owes Mex$7 million in 30 days for a recent shipment from Mexico. It faces the following
Question:
DKNY owes Mex$7 million in 30 days for a recent shipment from Mexico. It faces the following interest and exchange rates:
How can DKNY construct a currency collar? What is the net premium paid for the currency collar? Using this currency collar, what is the net dollar cost of the payable if the spot rate in 30 days is Mex$10.75/$? Mex$11.03/$? Mex$11.25/$?
Transcribed Image Text:
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%
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DKNY can create a currency collar by simultaneously buying an outofthemoney put option and selling a...View the full answer
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Related Book For
Foundations Of Multinational Financial Management
ISBN: 9780470128954
6th Edition
Authors: Alan C Shapiro, Atulya Sarin
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