Question
Barbara Santa Co., a U.S. firm, will receive 300,000 Malaysian ringgit in one year. The firm will hedge this receivable with a money market hedge.
Barbara Santa Co., a U.S. firm, will receive 300,000 Malaysian ringgit in one year. The firm will hedge this receivable with a money market hedge. The current spot rate is $0.393 per ringgit and the 1-year forward rate $0.375 per ringgit. The firm can borrow ringgit at 6% annual interest and invest ringgit at 5% annual interest. The firm can borrow dollars at 2% annual interest and invest dollars at 1.5% annual interest. How many dollars will the firm receive in one year if it executes a money market hedge? Assume the firm will begin by borrowing rather than using its own funds. Round your final answer to the nearest dollar (whole number).
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