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QUESTION 7 Chimichanga is a U.S. fast food chain which imports supplies from Mexico. The company will need 1,000,000 Mexican peso (MXN) in one year
QUESTION 7 Chimichanga is a U.S. fast food chain which imports supplies from Mexico. The company will need 1,000,000 Mexican peso (MXN) in one year to pay its suppliers The firm expects the following exchange rate scenarios and probabilities: Scenario Probability A B Spot rate in one year S0.0541 $0.055 $0.0559 0.5 10.3 0.2 The spot rate is $0.055 per peso and the one-year forward rate is $0.0555 per peso. The U.S. interest rate is 4% and the Mexican interest rate is 17 A cal aption on pesos expiring in one year costs $0.0044 per peso and has an exercise price of 50.055 per peso. What is the total cost of creating a money market hedge. including interest (in %)? O $49,550 O $51,532 O $51,212 O $51,321
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