Suppose that A company wishes to use a money market hedge to protect a COP 3.75billion payable due in two year's time. The US interest rate is currently 8.2% per annum ( compounded annually) and the Colombian interest rate is 14.5% per annum (compounded annually). 

If the spot rate moves from its current value of COP2,200/USD today to COP1,950/USD at the time of the payable being due, How much better or worse off is A company as a result of performing the available money market hedge in comparison to leaving their position unhedged?

Answer rating: 100% (QA)

To determine how much better or worse off A company is as a result of performing the money market hedge we need to compare the cost of hedging to the ... View the full answer