Suppose it is 1987 and General Motors uses a money market hedge to protect an

Lit 200 million payable due in one year. The U.S. interest rate at the time of the hedge

was 9% and the lira interest rate was 14%. If the spot rate moved from Lit 1293 at the

start of the year to Lit 1349 at the end of the year, what was GM's cost of the money

market hedge?

a)

$3,647

b)

$414

c)

GM gained $1,069

d)

GM gained $5,631

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