10. Money Market Hedge of Payables. Hawkes Imports, a U.S firm, imports sauvignon blanc wines from New Zealand. It has payables of New Zealand dollars (NZD) 1,000,000 in six month. The treasurer of Hwakes is considering a money market hedge and is faced with the following data:

NZD spot USD 0.62

NZD 6- month forward USD 0.60

USD rate, lending 4%

USD rate, borrowing 4.3%

NZD rate, lending 5%

NZD rate, borrowing 6.2 %

Show the steps involved in this hedge and net cash flow ( cost) of meeting the payables. Assume annual compunding.

11. Money Market Hedge of Receivables . Tom Turbines, a U.S firm, export windmills to New Zealand and expects receivables of New Zealand dollar (NZD) 2,500,000 in six months. Using the information from problem 10 , demonstrate how the firm can use the money market hedge to protect its receivables position.