1) What is today's CNYUSD Spot Rate?

Today's Spot Rate:

Dec. 11, 2018 Actual

Spot Rate = USDCNY 6.90566

Inverse Spot Rate = CNYUSD 0.1448

I CNY = 0.144813 USD

CAD 100,000,000 = USD 14,480,000

2) What is the 90-day Forward Rate?

3 Month Forward Rate

MAR. 11, 2019 Forecast

Remember, USD is not the base

1 CNY = USD 0.144813

Inverse Forecasted Spot Rate = CNYUSD 0.1445

CNY 100,000,000 = USD 14,450,000

3) What is the implied Chinese 3 month interest rate?

Spot Rate x ((1+ implied Chinese interest rate) / (1+ US interest rate)) = Forward Rate

Spot Rate x (1 + x) / (1+ 0.0235) = Forward Rate

0.1448 x (1 + x) / (1 + 0.0235) = 0.1445

0.1448 + 0.1448 x / 1.0235 = 0.1445

0.1448 + 0.1448 x = 0.1445 * 1.0235

0.1448 x = 0.1478 - 0.1448

X = 0.00309 / 0.1448

X = 0.0213397 or 2.13%

Actual 3-month US Treasury Bill rate = 2.35%

Implied 3-month Chinese interest rate = 2.13%

4) To execute a Money Market Hedge, calculate the Present Value of the CNY 100,000,000 payable.For the discount rate, use the implied Chinese 3-month interest rate you calculated in #3.

Step 1. Calculate the PV of the foreign currency payable

Use the discount rate of one of the 3-month foreign Money Market instruments

Chinese Treasury Bill 3 Month December 11, 2018: 2.13%

In 90 days, CNY 100,000,000 is due and payable

What is the PV of CNY 100,000,000, at 2.13% rate?

FV / (1 + Rate) = PV

100,000,000 / 1.0213 = CNY 97,914,422

Step 2.CNY 97,914,422 today equals what value of USD today?

Use Inverse Spot Rate = CNYUSD 0.1448

CNY 97,914,422 x 0.1448 = USD 14,178,008

Step 3.

Withdraw USD 14,178,008 from US bank account

Convert to CNY 97,914,422

Deposit CNY 97,914,422 into Chinese bank, investing in a 3-month Chinese Treasury Bill paying 2.13%

Step 4.

Over the next 90 days the CNY 97,914,422 deposit will grow 2.13% to CAD 100,000,000

o97,914,422 x 1.0213 = 99,999,999.2

Withdraw CNY 99,999,999.2 from the Chinese bank on Mar. 11, 2019

Pay the Chinese factory the CNY 99,999,999.2 on Mar. 11, 2019

5) What is the USD value today of the CNY value you calculated in#4?

1 USD = 6.90566CNY

1 CNY = 0.144813 USD

CNY 97,914,422 x 0.1448 = USD 14,178,008

I NEED ANSWER BASED FROM THIS RESULT AND THE QUESTION IS THIS BELOW:-

Should the US Company hedge the payable by entering into a Money Market Hedge (as you calculated in that assignment) or should the Company hedge the payable by entering into a Forward Contract? Why?