Assume the following information: 90day U.S. interest rate = 1.5% 90-day Philippine interest rate = 3% 90-day
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Question:
- Assume the following information:
- 90day U.S. interest rate = 1.5%
- 90-day Philippine interest rate = 3%
- 90-day forward rate of Philippine peso = $0.020
- Spot rate of Philippine peso = $0.025
Assume your firm in the United States will need 300,000,000 Philippine pesos in 90 days. It wishes to hedge this payables position.
Would it be better off using a forward hedge or a money market hedge? Provide the mathematical analysis to justify your position.
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