Question
Due to the COVID-19 situation, central banks around the world launch multiple relief packages. A US corporation afraid its EURO receivable will result in less
Due to the COVID-19 situation, central banks around the world launch multiple relief packages. A US corporation afraid its EURO receivable will result in less USD. Its manager comes to the bank that you work for to hedge the Euro 1.5 million receivable due in 7 months. The following information shows up on your screen:
Spot exchange rate: $1.0234/- $1.0256/
US 7-month interest rates are 0.75% for investing and 2.49% for borrowing.
EU 7-month interest rates are 0.25% for investing and 1.59% for borrowing.
Please remember: Interest rates are quoted as annualized rates.
The bank that you work for demands a 0.55% profit margin for all forward contracts. How much is the forward quotation that you will provide to your corporate customer?
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Principles of managerial finance
Authors: Lawrence J Gitman, Chad J Zutter
12th edition
9780321524133, 132479540, 321524136, 978-0132479547
