Question
Account Payable in Turkish Lira (TL) . Your recent import from Turkey has resulted in a three-month account payable in the amount of TL14.5 million.
Account Payable in Turkish Lira (TL). Your recent import from Turkey has resulted in a three-month account payable in the amount of TL14.5 million. You would like to examine a few hedging strategies. The following information is available. Your borrowing and investment rates in each country are at the same rates.
Spot rate = TL1.49/$
Three-month forward rate = TL1.62/$
U.S. interest rate = 3.0 percent per year (or 3.0/4 % per 3 months)
Turkish interest rate = 8.4 percent per year (or 8.4/4 % per 3 months)
WACC of your company = 12.0 percent per year (or 12.0/4 % per 3 months)
Cost of an option on TL at the strike price of TL1.54/$ = 2.0 percent
Please answer the following question regarding the above case. All answers are in millions.
If you use forward rate, the outcome will be:
Group of answer choices
$8.950617
unknown
$9.731544
$8.734940
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