Question
A U.S. firm has a -denominated payable of 325,000 in 3 months. Rather than a forward hedge or an option hedge, the U.S. firm is
A U.S. firm has a -denominated payable of 325,000 in 3 months. Rather than a forward hedge or an option hedge, the U.S. firm is going to execute a money-market hedge. (Convert dollars into s today, deposit the s into a money market account that earns interest, and watch the deposit grow to have a future value of 325,000 in 3 months) -denominated money market deposits earn a 0.45% return over 3 months. If the current exchange rate is $1.45/, what is the guaranteed dollar amount the U.S. firm will have to pay today in order to pay off the 325,000?
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