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7. Given the following information: 180 day U.S. interest rate = 8% 180 day Chinese interest rate = 9% 180 day forward rate of Chinese
7. Given the following information:
180 day U.S. interest rate = 8%
180 day Chinese interest rate = 9%
180 day forward rate of Chinese Yuan = $1.51
Spot rate of Chinese Yuan = $1.47
Huang Corp. from the United States will receive 400,000 Chinese Yuan in 180 days, and the firm wants to hedge this receivable position. Which way is better, a forward hedge or a money market hedge? Please justify your answer with estimated costs for each type of hedge.
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