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A US based firm will be paid Euros 3,000,000 in 90 days from now for todays shipment to Germany. It wishes to hedge this receivable.
- A US based firm will be paid Euros 3,000,000 in 90 days from now for todays shipment to Germany. It wishes to hedge this receivable. Assume the following information:
| 90-day eurodollar borrowing rate | 6.00%
|
| US companys weighted average cost of capital ($)
| 8.00% |
| 90-day forward rate 1USD = 0.934 EUROs
| $0.934 |
| Current spot rate 1USD = 0.925 EUROs
| $0.925 |
Would the firm be better off with a forward hedge or a money market hedge? Show workings for each.
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