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Question 8 The treasurer of Mercury Plc expects to pay USD2,000,000 for import of car parts from Chicago. The payment is required in four months
Question 8 The treasurer of Mercury Plc expects to pay USD2,000,000 for import of car parts from Chicago. The payment is required in four months time. The following GBP/USD are rates are available: USD/GBP spot rate 1.2840 - 1.2870 USD/GBP 4 month forward rate 0.32 cent - 0.30 cent GBP Four month money market borrowing interest rate 1.60% (annual 4.8%) USD Four month money market deposit interest rate 1.50% (annual 4.5%) [Question 8 continues on the following page] Module Code: 5FNCE007W Page 6 of 9 Explain using the above data where relevant, which of the following hedging alternatives is the most attractive to Mercury Plc: i. taking out forward exchange contract or ii. a money market hedge. [Total 25 marks]
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