Answer all parts of the question Question 1: Vodafone LLC (US) and AT&T LLC (US) are two of the biggest telecommunication service providers in the US. On top of their existing profitable position they have continuly been hedging their foreign currency earnings. While they manufacture or provide services in Europe, significant sales are coming from non euro currency markets. How they hedge otter however, dramatically. While Vodafone hedged to protect earnings AT&T LLC has sometimes generated a significant proportion their earnings from their hedges. As the recent graduate from CUD, the CFO of Vodafone LLC (US) assigns you the important task of analyzing the different types of risk faced by the multinational particularly, for European desk. The following transactions are of particular interest to the firsance director The Vodafone LLC parent company in the US has sold inventory in Italy for 87,500,000 payable in 45 days. Current spot rate $0.7025/ 15-day forward rate 50.75/ Vodafone LLC parent cost of capital is 120% 1545-day borrowing rate is 7.0% pa. US 45-day investing rate is 5.0% pa ay 45-day borrowing rate is 18.0% pa Italy 5-day investing rate is 3.0 pua As a junior analyst you forecast the future spot rate in 45 days to be 50.76/ E The borrowing rate in Italy is extremely high due to anos not willing to and to us based companies (b) Armbyte the different. zypes of risk tacel by Vodafone based on the transaction abow. You can assume the could appreciatie die ckeirecinta by 10% and that you believe the Future spot rate to be 50.76/ in 45 days if you want to hedge the risk by using a forward adott how would you proceed? Show your workings sit you want to hedge the risk by using a money market hedge. How would you proceed? Show your working Estimate the break even rate which would make both the money hedge and forward hedge equally attractive Show your working Do you expect borrowing and investing rates to be higher in Canada or Mexico Explain your answer Answer all parts of the question Question 1: Vodafone LLC (US) and AT&T LLC (US) are two of the biggest telecommunication service providers in the US. On top of their existing profitable position they have continuly been hedging their foreign currency earnings. While they manufacture or provide services in Europe, significant sales are coming from non euro currency markets. How they hedge otter however, dramatically. While Vodafone hedged to protect earnings AT&T LLC has sometimes generated a significant proportion their earnings from their hedges. As the recent graduate from CUD, the CFO of Vodafone LLC (US) assigns you the important task of analyzing the different types of risk faced by the multinational particularly, for European desk. The following transactions are of particular interest to the firsance director The Vodafone LLC parent company in the US has sold inventory in Italy for 87,500,000 payable in 45 days. Current spot rate $0.7025/ 15-day forward rate 50.75/ Vodafone LLC parent cost of capital is 120% 1545-day borrowing rate is 7.0% pa. US 45-day investing rate is 5.0% pa ay 45-day borrowing rate is 18.0% pa Italy 5-day investing rate is 3.0 pua As a junior analyst you forecast the future spot rate in 45 days to be 50.76/ E The borrowing rate in Italy is extremely high due to anos not willing to and to us based companies (b) Armbyte the different. zypes of risk tacel by Vodafone based on the transaction abow. You can assume the could appreciatie die ckeirecinta by 10% and that you believe the Future spot rate to be 50.76/ in 45 days if you want to hedge the risk by using a forward adott how would you proceed? Show your workings sit you want to hedge the risk by using a money market hedge. How would you proceed? Show your working Estimate the break even rate which would make both the money hedge and forward hedge equally attractive Show your working Do you expect borrowing and investing rates to be higher in Canada or Mexico Explain your