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7. Under Armour is building a $10 million dollar (MYR 20 million) addition to its Kuala Lumpur factory in Malaysia. On May 1t it pays
7. Under Armour is building a $10 million dollar (MYR 20 million) addition to its Kuala Lumpur factory in Malaysia. On May 1t it pays $9 million dollars (MYR 18 million) of the construction costs upfront, and will pay the $1 million dollar balance (MYR 2 million) upon completion one year from now. The payment to the Malaysian construction company is due in MYR a. If Under Armour left this MYR payable unhedged, would the management team prefer the MYR to depreciate or appreciate vs. the USD (as it solely relates to just this yable)? b. Under Armour has decided to hedge the FX risk of this payable by entering into a forward contract. First it needs to know what the USD-MYR 1-year forward rate is. The May 1t USD-MYR spot rate is 1 USD 2 MYR USD 1-year interest rate is 2% MYR 1-year interest rate is 4% If Interest Rate Parity holds, what is the May 1 USD-MYR 1-year forward rate? c. Using the forward rate that you calculated above in 7b, write out the details of the forward contract that UnderArmour will use to hedge their MYR payable due from now one year 7. Under Armour is building a $10 million dollar (MYR 20 million) addition to its Kuala Lumpur factory in Malaysia. On May 1t it pays $9 million dollars (MYR 18 million) of the construction costs upfront, and will pay the $1 million dollar balance (MYR 2 million) upon completion one year from now. The payment to the Malaysian construction company is due in MYR a. If Under Armour left this MYR payable unhedged, would the management team prefer the MYR to depreciate or appreciate vs. the USD (as it solely relates to just this yable)? b. Under Armour has decided to hedge the FX risk of this payable by entering into a forward contract. First it needs to know what the USD-MYR 1-year forward rate is. The May 1t USD-MYR spot rate is 1 USD 2 MYR USD 1-year interest rate is 2% MYR 1-year interest rate is 4% If Interest Rate Parity holds, what is the May 1 USD-MYR 1-year forward rate? c. Using the forward rate that you calculated above in 7b, write out the details of the forward contract that UnderArmour will use to hedge their MYR payable due from now one year
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