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Company Deemed, Inc., a US-based company, has sold its products to a Chinese Company. At the spot rate of 1 USD = 7 CNY prevailing
Company Deemed, Inc., a US-based company, has sold its products to a Chinese Company. At the spot rate of 1 USD = 7 CNY prevailing today the invoice value is 1 million USD. The company will pay in CNY in 90 days. The 90-day forward rate is 1USD = 7.1 CNY. The borrowing rates in US and China are 2% and 8%, respectively. The company's cost of capital is 10%. The company has to decide between forward market hedge and money market hedge. Do the analysis and make a recommendation.
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