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This question is related to Foreign exchange and international finance. Thanks, and definite thumbs up for answers! Please stick to any rounding instructions provided. Question
This question is related to Foreign exchange and international finance. Thanks, and definite thumbs up for answers! Please stick to any rounding instructions provided.
Question 27 2 pts Questions 23-36 are based on the following information Transaction Exposure Problem: (34 points in total) Suppose that you (i.e., company XYZ) are a US-based importer of goods from Canada. You expect the value of the Canada to increase against the US dollar over the next 6 months. You will be making payment on a shipment of imported goods (CAD100,000) in 6 months and want to hedge your currency exposure. The US risk-free rate is 5% and the Canada risk-free rate is 4% per year. The current spot rate is $1.25/CAD, and the 6-month forward rate is $1.3/CAD. You can also buy a 6-month option on Canadian dollars at the strike price of $1.4/CAD for a premium of $0.10/CAD. If XYZ wants to hedge the transaction exposure using money market hedge, XYZ should If XYZ wants to hedge the transaction exposure using money market hedge, XYZ should 9 borrow PV of CAD and buy USD today, and deposit USD in the bank and sit on it. o buy PV of CAD today using USD, and deposit CAD in the bank and sit on it
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