Question
A Norwegian low-cost carrier has bought 10 new Boeing 787 Dreamliner for a total of USD 2 billion. Payment is due in 270 days. The
A Norwegian low-cost carrier has bought 10 new Boeing 787 Dreamliner for a total of USD 2 billion. Payment is due in 270 days. The low-cost carrier wants to hedge this exposure. Assume that Norwegian 270-day deposits and loans carry an interest rate of 3% p.a. and US 270-day deposits and loans an interest rate of 2% p.a. The current exchange rate is NOK 6.6632/USD and the forward exchange rate is NOK 6.7800/USD.
Q1) Calculate Money Market Hedge
Q2) Forward market hedge.
Q3) Assume that the NOK interest rate, the spot rate, and the forward rate are correct. Determine what USD interest rate would make the Norwegian firm indifferent between the two alternative hedges.
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley
12th Edition
1439044473, 978-1439044476
