Mattel Toys.Mattel is a U.S.-based company whose sales are roughly two-thirds in dollars (Asia and the Americas) and one-third in euros (Europe). In September, Mattel delivers a large shipment of toys (primarily Barbies and Hot Wheels) to a major distributor in Antwerp. The receivable,

33

million, is due in 90 days, standard terms for the toy industry in Europe. Mattel's treasury team has collected the following currency and market quotes in the popup window:

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. The company's foreign exchange advisors believe the euro will be at about

$1.4201/

in 90 days. Mattel's management does not use currency options in currency risk management activities. Assume a 360-day financial year.

a. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the current spot rate of

$1.4148/?

The Credit Suisse forward rate of

$1.4191/?

The Barclays forward rate of

$1.4189/?

The expected spot rate of

$1.4201/?

b. How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Credit Suisse 90-day forward contract? The Barclays 90-day forward contract?

c. How much in U.S. dollars will Mattel receive in 90 days with a money market hedge?

d. Advise Mattel on which hedging alternative is probably preferable.

Current spot rate ($/)	$1.4148
Credit Suisse 90-day forward rate ($/)	$1.4191
Barclays 90-day forward rate ($/)	$1.4189
Mattel Toys WACC ($)	10.605%
90-day eurodollar interest rate	4.019%
90-day euro interest rate	3.755%
90-day eurodollar borrowing rate	5.235%
90-day euro borrowing rate	5.158%
Click on the icon located on the top-right corner of the data table in order to copy its contents into a spreadsheet.

a. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the current spot rate of

$1.4148/?

$enter your response here

(Round to the nearest dollar.)

Part 2

How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the Credit Suisse forward rate of

$1.4191/?

$enter your response here

(Round to the nearest dollar.)

Part 3

How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the Barclays forward rate of

$1.4189/?

$enter your response here

(Round to the nearest dollar.)

Part 4

How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the expected spot rate of

$1.4201/?

$enter your response here

(Round to the nearest dollar.)

Part 5

b. How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Credit Suisse 90-day forward contract?

$enter your response here

(Round to the nearest dollar.)

Part 6

How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Barclays 90-day forward contract?

$enter your response here

(Round to the nearest dollar.)

Part 7

c. How much in U.S. dollars will Mattel receive in 90 days with a money market hedge?

$enter your response here

(Round to the nearest dollar.)

Part 8

d. Advise Mattel on which hedging alternative is probably preferable.(Select from the drop-down menu.)

The

forward market hedge or money market hedge?

guarantees Mattel the greatest dollar value for the accounts receivable when using the cost of capital as the reinvestment rate (carry-forward rate).