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A French company needs to pay a creditor in Norway Nkr3,500,000 in three months time. The spot exchange rate is Nkr/7.5509-7.5548. The company can borrow
A French company needs to pay a creditor in Norway Nkr3,500,000 in three months time. The spot exchange rate is Nkr/7.5509-7.5548.
The company can borrow in Euros for 3 months at 8.60% per annum and can deposit Nkr for 3 months at 10%. What is the cost in Euros if a money market hedge is used and what effective forward rate would this represent?
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