Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PepsiCo would like to hedge its C$40 million payable to Alcan, a Canadian aluminum producer, which is due in 90 days. Suppose it faces the

image text in transcribed

PepsiCo would like to hedge its C$40 million payable to Alcan, a Canadian aluminum producer, which is due in 90 days. Suppose it faces the following exchange and interest rates: Spot rate: $0.9422-31/C$; Forward rate (90 days): $0.9440-61/C$; Annualized 90-day interest rates are 4.71%-4.64% for Canadian dollar and 5.50%-5.35% for the U.S. dollar (the first interest rate is the borrowing rate and the second one is the lending rate) a. Calculate the total cost of a forward hedge for this payable. (3 marks) b. Calculate the total costs of a money market hedge for this payable. (4 marks) c. Which hedging alternative would you recommend? (1 mark)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Tail Risk Hedging Creating Robust Portfolios For Volatile Markets

Authors: Vineer Bhansali

1st Edition

0071791752,0071791760

More Books

Students also viewed these Finance questions