hedge this account using the money market strategy. use the following information. Calculate the outcome of this strategy at the end of the four months.

Spot rate = $1.116/euro

Account payable amount = euro 50,000.00

Commercial interest rate on US dollar = 4.5 percent (borrowing or lending)

Commercial interest rate on euro = 3.0 percent (borrowing or lending)

The firm will not be affected due to taking extra leverage.

1 Your outcome at the end of the period will be (do NOT use $ sign with your answer):

2 Your outcome at the beginning of the period will be (do NOT use $ sign with your answer):

3 Your outcome in this strategy at the end of the period will be :

a Certain

b Uncertain

c Unknown

d It depends on other factors

4 Your outcome in this strategy at the end of the period:

a Will bear a considerable loss

b Will entail some extra gain

c Will be somewhat certain and partially uncertain

d None of the answers in this question is correct.

5 Your outcome in this strategy at the end of the period will depend at the spot exchange

rate at the end of the fourth month.

a. Agree

b. Disagree

6 This strategy (=MM Hedge) is far better than forward hedge since its risk is lower.

a. Agree

b. Disagree