Question
A U.S.-based company recently concluded a sale for 3,000,000 that is due in 90 days. Given the following exchange rates and interest rates, compute the
A U.S.-based company recently concluded a sale for 3,000,000 that is due in 90 days. Given the following exchange rates and interest rates, compute the available hedging choices and recommend what transaction exposure hedge is in the companys best interest. (Note that information is not given on options, so only three strategies need to be compared.)
Spot rate | $1.7620/ |
Expected spot in 90 days | $1.7850/ |
90-day forward rate | $1.7550/ |
90-day dollar deposit rate | 6.0% p.a. |
90-day dollar borrowing rate | 8.0% p.a. |
90-day pound deposit rate | 8.0% p.a. |
90-day pound borrowing rate | 14.0% p.a. |
W ACC | 12.0% p.a. |
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