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1-A USAcorp. will pay 5,000,000 Pounds (P) in 216 days ( = .60 yr) to a British supplier. USAcorp is concerned about exchange rate risk
1-A USAcorp. will pay 5,000,000 Pounds (P) in 216 days ( = .60 yr) to a British supplier. USAcorp is concerned about exchange rate risk on the future US$ cost to meet this Pound payable. Spot rate today is $1.355 / P . ANNUAL deposit (investing) rate is: USA = 5.2% ; U.K.= 3.0% ANNUAL borrowing rate is: USA = 6.4%; U.K. = 4.2% . A) $ 10pts MONEY MARKET hedge amount for USAcorp 1-B USAcorp. will receive 5,000,000 Euros (E) in 270 days ( = .75 yr) from a European customer. USAcorp wants to hedge exchange rate risk on the future US$ it gets when converting E to US$. Spot rate today is $1.18/E ANNUAL deposit (investing) rate is: Europe = 5.0%; USA = 2.4% ANNUAL borrowing rate is: Europe = 6.4%; USA = 3.8% B) $ 10pts MONEY MARKET hedge amount for USAcorp
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