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In one year, spot rate happens to be 0.85 $/C$. If you use a money market hedge, what will be the total profit of the
In one year, spot rate happens to be 0.85 $/C$. If you use a money market hedge, what will be the total profit of the hedge?
A: The profit will be the same as the profit when the spot price is 0.75 $/CS
B: The profit will be the more than the profit when the spot price is 0.75 $/CS C: The profit will be the less than the profit when the spot price is 0.75 $/CS
Your U.S. firm owes its Canadian supplier C$140,000 in one year and is concerned about the amount of dollars it will have to pay for this purchase in one year. You did some research and have collected the following information Current spot exchange rate is 0.8$/C$ Forward exchange rate is 0.78$/ for one year maturity and a minimum size of 100,000 U.S. interest rate is 2.00% per annum and interest rate in Canada is 5.00% per annum. The CME Canadian dollar December futures contract has a price of 0.775$/C$ and C$100,000 contract sizes. One-year OTC options are available for a size of C$ 100,000 with following strike prices and premiums. Call and put premiums for 0.70$/C$ strike are 0.10$/C$ and 0.03$/C$, respectively. o Call and put premiums for 0.85$/C$ strike are 0.04$/C$ and 0.11$/C$. respectively, Your U.S. firm owes its Canadian supplier C$140,000 in one year and is concerned about the amount of dollars it will have to pay for this purchase in one year. You did some research and have collected the following information Current spot exchange rate is 0.8$/C$ Forward exchange rate is 0.78$/ for one year maturity and a minimum size of 100,000 U.S. interest rate is 2.00% per annum and interest rate in Canada is 5.00% per annum. The CME Canadian dollar December futures contract has a price of 0.775$/C$ and C$100,000 contract sizes. One-year OTC options are available for a size of C$ 100,000 with following strike prices and premiums. Call and put premiums for 0.70$/C$ strike are 0.10$/C$ and 0.03$/C$, respectively. o Call and put premiums for 0.85$/C$ strike are 0.04$/C$ and 0.11$/C$. respectivelyStep by Step Solution
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