Question
10.24 Suppose it is 1987 and General Motors uses a money market hedge to protect a Lit 200 million payable due in one year. The
10.24 Suppose it is 1987 and General Motors uses a money market hedge to protect a Lit 200 million payable due in one year. The U.S. interest rate at the time of the hedge was 9% and the lira interest rate was 14%. If the spot rate moved from Lit 1293 at the start of the year to Lit 1349 at the end of the year, what was GM's cost of the money market hedge?
This question has been asked already but I didnt understand the explanation of how to get to the final answer of $414. So you calculate the money market value vs the forward value to get $363 but why do you multiply by 14% to get 414?
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