Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume Centene Inc. will receive 15 million Fijian dollar in 18 months. It does not have a relationship with a bank at this time, and
Assume Centene Inc. will receive 15 million Fijian dollar in 18 months. It does not have a relationship with a bank at this time, and therefore cannot obtain a forward contract to hedge its receivable at this time. However, in 6 months, it will be able to obtain a one-year (12-month) forward contract to hedge its receivable. Today the 6month U.S. interest rate (not annualized) is 6%, the 12 -month U.S. interest rate 8%, the 6-month Fiji interest rate is 9%, and the 12-month Fiji interest rate is 11%. Assume that both interest rate parity and international fisher effect exist. Assume that the existing interest rates are expected to remain constant over time. The spot rate of the Fijian dollar today is $0.44. Based on this information, estimate the amount of dollars that Centene Inc. will receive in 18 months if Centene Inc. obtains a one-year forward contract to hedge its receivables six months later. $6,421,621.62. $6,244,879.74. $6,783,333.33. $6,975,314.47
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started