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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 ______% 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 ($/) | $1.5439 | |
3-month U.S. dollar investment rate | 5.000% | |
3-month U.S. dollar borrowing rate | 7.000% | |
3-month UK investment interest rate | 6.500% | |
3-month UK borrowing interest rate | 9.000% | |
Put options on the British pound: Strike rates, US$/pound ($/) | ||
Strike rate ($/) | $1.55 | |
Put option premium | 1.554% | |
Strike rate ($/) | $1.54 | |
Put option premium | 1.54% | |
Strike rate ($/) | $1.55 | |
Call option premium | 1.528.% | |
Trident's WACC | 12.000% | |
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/) | $1.5431 |
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