Question
Question 1 An exporter in the US has sold 20 million (in Pounds) in goods to one company in UK. Payment is due in 180
Question 1
An exporter in the US has sold 20 million (in Pounds) in goods to one company in UK. Payment is due in 180 days.
Spot rate (USD/GBP):1.7500 - 50
180-day forward rate (USD/GBP)1.8050 - 90
180-day USD interest rate3.00 - 4.00% p.a.
180-day GBP interest rate1.50 - 2.00% p.a.
Required:
a. What is the hedged value of this exporter's receivable using the money market hedge?
b. What is the hedged value using forward contracts?
c. Which of the hedging alternatives analysed in parts (a) and (b) would you recommend to the exporter and explain the reason why this alternative is chosen?
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Intermediate Financial Management
Authors: Brigham, Daves
10th Edition
978-1439051764, 1111783659, 9780324594690, 1439051763, 9781111783655, 324594690, 978-1111021573
