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QUESTION: Your company ordered an environmental study at a cost of 225 000 USD. This amount will be due when the study is delivered in
QUESTION: Your company ordered an environmental study at a cost of 225 000 USD. This amount will be due when the study is delivered in 9 months. The current spot rate is 1.30 CAD/USD. Compare the cost in CAD of this study according to the spot rate in 9 months.
- Without hedging
- Hedging using a 9-month forward contract at an exchange rate of 1.33 CAD/USD.
- With money market hedging. The borrowing rate in CAD is 2.8% and the deposit rate is 1.2%. The borrowing rate in USD is 3.2% and the deposit rate is 1.9%. (Effective rates per 9 months)
- With option hedging. The following options on 100 USD expire in 9 months:
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