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(Transaction Exposure)Trident A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of 2,000,000 is due in 90 days.
(Transaction Exposure)Trident A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of 2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for money market hedge) is Answer% when comparing the forward hedge and the money market hedge.
| Assumptions | Value | |
| 90-day A/R in pounds | 2,000,000.00 | |
| Spot rate, US$ per pound ($/) | $1.5610 | |
| 90-day forward rate, US$ per pound ($/) | $1.5461 | |
| 3-month U.S. dollar investment rate | 4.000% | |
| 3-month U.S. dollar borrowing rate | 7.000% | |
| 3-month UK investment interest rate | 7.500% | |
| 3-month UK borrowing interest rate | 9.000% | |
| Put options on the British pound: Strike rates, US$/pound ($/) | ||
| Strike rate ($/) | $1.55 | |
| Put option premium | 1.554% | |
| Strike rate ($/) | $1.54 | |
| Put option premium | 1.544% | |
| Strike rate ($/) | $1.55 | |
| Call option premium | 1.517.% | |
| Trident's WACC | 12.000% | |
| Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/) | $1.5431 |
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