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Coleman Co. needs to pay 100,000 euros in one year. The deposit interest rate of euro is 5% per annum and the spot rate of
Coleman Co. needs to pay 100,000 euros in one year. The deposit interest rate of euro is 5% per annum and the spot rate of euro is $1.1667. If the firm can borrow money to make the money market hedge, the borrowing cost for US dollar is 8% per annum. How should the firm take the money market position to hedge the transaction exposure for the euro payable? How much is the U.S. dollar cost at the end of the one year?
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