5. Sun Microsystems (B). Assume that Sun Microsystems prefers to receive US. dollars rather than euros for
Question:
5. Sun Microsystems (B). Assume that Sun Microsystems prefers to receive US. dollars rather than euros for the trade transaction described in Problem 4. It is considering two alternatives: 1) It can sell the acceptance for euros at once and convert the euros immediately to U.S. dollars at the spot rate of exchange of $1.00/; or 2) It can hold the euro acceptance until maturity but at the start sell the expected euro proceeds forward for dollars at the three-month forward rate of $1.02/.
a. What are the U.S. dollar net proceeds received at once from the discounted trade acceptance in alternative 1?
b. What are the U.S. dollar net proceeds received in three months in alternative 2?
c. What is the break-even investment rate that would equalize the net U.S. dollar proceeds from both alternatives?
d. Which alternative should Sun Microsystems choose?
Step by Step Answer:
Fundamentals Of Multinational Finance
ISBN: 9780321541642
3rd Edition
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman