Question
Tesla, Inc. sells its 2022 automobiles to Euro Zone at a price of 20 million. These U.S. cars will be delivered and paid in 2023
Tesla, Inc. sells its 2022 automobiles to Euro Zone at a price of 20 million. These U.S. cars will be delivered and paid in 2023 (exactly one year later). Related financial info below (for both forward and money markets): 1) Euro loan yearly interest rate: r* = 4% 2) U.S. yearly interest rate: r = 3% 3) Current spot exchange rate: $1.2154 per 4) 1-year expected spot exchange rate: $1.1953 per a. If Tesla decides to hedge its financial/exchange risks by using forward contract, estimate to forward exchange rate (one year later). (1 point) b. Based on Part a., should Tesla hedge using Forward or Money market to maximize its companys revenue? Explain and show your calculation. (3 points)
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