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Assume the following: 90 days U.S interest rate = 4% 90 days British interest rate = 5% 90 days forward rate of British pound =
- Assume the following:
90 days U.S interest rate = 4%
90 days British interest rate = 5%
90 days forward rate of British pound = $1.50
Spot rate of pound = $1.48
Assume Eastfly Corp. based in the U.S will receive 100,000 pounds in the next 90 days. Should they use a forward hedge or a money market hedge (borrowing method)? In other words, you should compare the cost of the firm when buying a GBP forward contract (notional amount of 100,000 GBP) versus the cost of borrowing in pounds and saving an U.S. Bank Account?
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