What is the money market hedge?

Today’s date: 14 February

Repatriation of EUR 3.5 million on 18 September

The company has an agreement to buy 300,000 computer chips at Yen9000 each on a semi-annual basis, with payment due on 15^th June. Interest rates are annualised, the actual number of days in the hedging period need to be considered (no of days/360). You can borrow in the Eurocurrency market at LIBOR + 1%

Euro Money Market Rates
			BID	ASK
EUDRG	7mo	19:59	1.3500	1.4100
Japanese Money Market Rates
			BID	ASK
4 months			0.1820	2420
USD Money Market Rates
			BID	ASK
USD Depo	4mo		0.5700	0.6300
USD Depo	7mo		0.7850	0.8350

Answer rating: 100% (QA)

The money market hedge is a technique used to hedge foreign currency risk by taking advantage of the interest rate differential between two currencies ... View the full answer