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Finance swap practice question Q1 GM exports vehicles from the USA to other countries and has just signed a contract to ship its vehicles to

Finance swap practice question

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Q1 GM exports vehicles from the USA to other countries and has just signed a contract to ship its vehicles to an Australian distributor. The deal is denominated in AUD, and GM will receive AUD300,000,000 when the vehicles arrive in Melbourne port in 180 days. Assume that GM can borrow and lend at 6% per annum in Australian dollars and assume that a year has 360 days. The spot exchange rate is S0(AUD/USD) =1.52, and the 180-day forward exchange rate is F (AUD/USD) =1.50. What should be the U.S. interest rate per annum that make GM indifferent between hedging the foreign exchange risk using the forward contract and hedging via a money market hedge? A. 11.58% B. 8.75% C. 10.18% D. 9.05% E. 14.83%

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