Question 10

ABC Corp. is a U.S.-based importer of Italian bicycles. In one year, ABC Corp. will owe 100,000 to an Italian supplier. The spot exchange rate is $1.19 = 1.00, and the one-year forward exchange rate is $1.16 = 1.00, the one-year interest rate in Italy is i = 3.5%, the one-year interest rate in the US is 5.5%. What would be the dollar cost in one year of this payable if ABC Corp. used a forward market hedge?

Question 11

Same facts as above: what would be the dollar cost in one year of this payable if ABC Corp. used a money market (i.e. synthetic forward) hedge?