Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Business firm buys 200000 worth of stereo speaker wire from Mexican manufacturer for delivery in 60 days with payment to be made in 90 days.

Business firm buys 200000 worth of stereo speaker wire from Mexican manufacturer for delivery in 60 days with payment to be made in 90 days. The rising Business firm deficit had caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/ dollar. The firm goes into forward market today and buys enough Mexican pesos at the 90-dat forward rate to completely cover its trade obligation. Assume that spot rate in 90 days is 5.40 Mexican pesos per U.S. dollar. How much in US dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Principles and Application

Authors: Arthur J. Keown, J. William Petty, David F. Scott, Jr.

10th edition

536514119, 536514110, 978-0536514110

More Books

Students also viewed these Finance questions

Question

Do the measurement items or tools have content relevance?

Answered: 1 week ago

Question

When may government agents search without a search warrant?

Answered: 1 week ago