Homework 3 (related with the 12th Week, 42nd, 43rd, 65th and 67th Reading Material): A U.S. investor expects to be receiving dividend from a Burundi diamonds company in three months but worries about the depreciation of the Burundi franc in three months due to the possible interest rate rises of the Federal Reserve. a. Calculate hedging alternatives (1. Do Nothing (use spot and forward rates), 2. Forward Sale 3. Money Market Hedge) and evaluate which alternative best suits to the U.S. investor. b. What is the spot exchange rate at which both forward hedge and money market hedge yields are equal to each other? (16 points) Dividend Declared due in Three Months in Burundi Franc BIF 987,900,000 (BIF) Spot Rate (BIF/USS) 1,952.65 Three Month Forward Rate (BIF/US$) 2,080.75 16% 18% 11 % 3-Month BIF Deposit Interest Rate 3-Month BIF Borrowing Interest Rate US Exporter's Weighted Average Cost of Capital (WACC) Discount Rate of BIF Deposit Rate for 3-Months Discount Rate of BIF Borrowing Rate for 3-Months 0.9615 0.9569