Nickel Plains of Canada has purchased $500,000$ pounds of nickel from Coin Ltd$.$ at U$.$S$.$ $$6\mathrm{.}96,$ payable

in $90$

days. The current spot rate is $1\mathrm{.}3404($$Can $/$ $U$.$S$.)$ and the $90-$day forward is $1\mathrm{.}3421.$ The vicepresident of

finance at Nickel Plains suggests that the spot rate in three months time will be $1\mathrm{.}3333.$

Interest rates in Canada are currently $2$ percent for $90$ days and $1\mathrm{.}6$ percent in the United States.

How we calculate this solution below?

solution:Money market hedge:

i$.$ Invest $90$ day discounted $($to meet contract$)$:

US interest rate $1\mathrm{.}60\%$

Discounted amount $ $3,466,325$

ii$.$ Convert to $ Canadian at the spot rate:

Spot rate $1\mathrm{.}3404$

Canadian $$4,646,262$

iii. Borrow in Canada at the current interest rates:

CDN$.$ interest rate $2\mathrm{.}00\%$

Future cost $$4,669,175$