2. Money-market Hedge t turns out that Dozier has also sought suppliers from foreign markets including ada, and that the US$847,061 materials cost in the bid preparation (see Exhibit ozier Part A) is really a translation of Canadian materials cost, CAS1,178,431.26 in Dozier used t the US doll the spot exchange rate on the bid preparation date, December 3, to arri ar materials cost. In fact, on January 14 following bid acceptance, Dozier placed a purchase order with a Canadian supplier as planned, resulting in an dollar payment due on April 14 in the above amount. The market rates on January 14 are as follows (based on actual historical rates) CAS exchange rate: CAS prime lending rate CAS there-month deposit rate: CAS1.4030/USS 11 .00% 10.70% ohn Gunn of the bank's International Division suggests that Dozier will be able to row in Canadian dollars at 1.00% over the Canadian prime lending rate. Robert who is responsible for Dozier's business with the bank, assures that Dozier can US prime lending rate flat (see Exhibit 4) given its posit in either currency at its respective rrow in US dollars at the relationship with the bank. Dozier can make a de deposit rat depositor's credit te; there is no additional spread because a deposit does not concern the a) Construct a money market hedge to fix the amount of US dollars necessary to pay for the Canadian materials cost. Specify the details of the three necessary transactions, i.e., how much of what currency you are borrowing, exchanging, and depositing at what rate. In particular, make sure to choose the correct borrowing and deposit rates What is the effective forward rate of your money-market hedge? Show at least four digits below the decimal point. Is the Canadian dollar in forward discount or premium in your effective forward contract? b) c) Compare the amount of US dollar payment resulting from your money-market hedge to the estimated US$847,061 materials cost in bid preparation. Did the hedge result in a lower USS materials cost than the estimate? In a perfect world in which all parity conditions hold ex post (i.e., without the expectations-see the Big Diamond), was Dozier' rate conservative, assuming that, as of bid submission, expected to remain higher than US interest rates for the relevant future (as they are on January 14 compare the above rates to Exhibit 4)? Support your argument stating which parity condition(s) you are invoking s choice to convert the Canadian materials cost by the spot Canadian interest rates were Note: It is more conservative to overestimate the cost than underestimate it. 2. Money-market Hedge t turns out that Dozier has also sought suppliers from foreign markets including ada, and that the US$847,061 materials cost in the bid preparation (see Exhibit ozier Part A) is really a translation of Canadian materials cost, CAS1,178,431.26 in Dozier used t the US doll the spot exchange rate on the bid preparation date, December 3, to arri ar materials cost. In fact, on January 14 following bid acceptance, Dozier placed a purchase order with a Canadian supplier as planned, resulting in an dollar payment due on April 14 in the above amount. The market rates on January 14 are as follows (based on actual historical rates) CAS exchange rate: CAS prime lending rate CAS there-month deposit rate: CAS1.4030/USS 11 .00% 10.70% ohn Gunn of the bank's International Division suggests that Dozier will be able to row in Canadian dollars at 1.00% over the Canadian prime lending rate. Robert who is responsible for Dozier's business with the bank, assures that Dozier can US prime lending rate flat (see Exhibit 4) given its posit in either currency at its respective rrow in US dollars at the relationship with the bank. Dozier can make a de deposit rat depositor's credit te; there is no additional spread because a deposit does not concern the a) Construct a money market hedge to fix the amount of US dollars necessary to pay for the Canadian materials cost. Specify the details of the three necessary transactions, i.e., how much of what currency you are borrowing, exchanging, and depositing at what rate. In particular, make sure to choose the correct borrowing and deposit rates What is the effective forward rate of your money-market hedge? Show at least four digits below the decimal point. Is the Canadian dollar in forward discount or premium in your effective forward contract? b) c) Compare the amount of US dollar payment resulting from your money-market hedge to the estimated US$847,061 materials cost in bid preparation. Did the hedge result in a lower USS materials cost than the estimate? In a perfect world in which all parity conditions hold ex post (i.e., without the expectations-see the Big Diamond), was Dozier' rate conservative, assuming that, as of bid submission, expected to remain higher than US interest rates for the relevant future (as they are on January 14 compare the above rates to Exhibit 4)? Support your argument stating which parity condition(s) you are invoking s choice to convert the Canadian materials cost by the spot Canadian interest rates were Note: It is more conservative to overestimate the cost than underestimate it