Use the following information to calculate the dollar cost of using a money market hedge to hedge
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Question:
Use the following information to calculate the dollar cost of using a money market hedge to hedge 2,000,000 pounds of payables due in 180 days.
- Assume the company has no cash.
- Assume the spot rate for the pound is $2.05, and the 180-day forward rate is $2.00.
- The British interst rate is 5% and the US interest rate is 4% over the one-year period.
Question 1A: How many dollars do I need to borrow?
Question 1B: What is the total cost of borrowing that amount?
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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