3. AMERI-Corp. will receive 5,000,000 Pounds (P) in 270 days ( = .75 yr) from a European customer. AMERI-Corp is concerned about exchange rate risk on the future US$ value of this receivable and wants to compare a Money Market or Option hedge. Spot rate today is $1.30 / P ANNUAL deposit (investing) rate is: Europe = 4.0% ; USA = 2.4% ANNUAL borrowing rate is: Europe = 5.0% ; USA = 3.6% A CALL option is available with 270-days to maturity with a strike price of $1.31/ P with a premium of $.015/P A PUT option is available with 270-days to maturity with a Strike price of $1.305 / P with a premium of $.022 / P AMERI-Corp forecasted the +270-day future expected Spot Rate as follows: $1.285 / P 15% prob. $1.295 / P 30% prob. $1.310 / P 40% prob. $1.325 / P 15% prob. QUES. 3-A-B-C Estimate the amounts that AMERI-Corp can expect by hedging among: $ 3-A 10pts MONEY MARKET hedge equivalent amount 3-B ) ) Money Market Option % 7pts 4. What is the effective annual interest rate on NewCo's 3-yr $15.0 million debt issue in the USA at LIBOR + 2? Upfront origination fee = 2.0%, if LIBOR stays steady at 3.0% for all 3 years of floating rate loan? Interest paid annually at yr-end. T = 0 Loan Cash Flow T = 1 Loan Cash Flow T = 2 Loan Cash Flow T = 3 Loan Cash Flow