Question
Trident the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of 2,000,000
Trident the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of 2,000,000 is due in 90 days. Given the following exchange rates and interest rates, which of the following statements about position and dollar receipt of forward hedge is correct?
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 ($/) | $1.5421 | |
3-month U.S. dollar investment rate | 4.000% | |
3-month U.S. dollar borrowing rate | 6.000% | |
3-month UK investment interest rate | 4.500% | |
3-month UK borrowing interest rate | 8.000% | |
Put options on the British pound: Strike rates, US$/pound ($/) | ||
Strike rate ($/) | $1.55 | |
Put option premium | 1.500% | |
Strike rate ($/) | $1.54 | |
Put option premium | 1.000% | |
Strike rate ($/) | $1.55 | |
Call option premium | 2.500% | |
Trident's WACC | 9.000% | |
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/) | $1.5431 |
Select one:
a. Short 2,000,000 in forward; receive $$3,00,000.00 in 90 days.
b. Long 2,000,000 in forward; receive $$1,542,100.00 in 90 days.
c. Long 2,000,000 in forward; receive $$3,084,200.00 in 90 days.
d. Short 2,000,000 in forward; receive $$3,084,200.00 in 90 days.
e. Short 2,000,000 in forward; receive $$1,542,100.00 in 90 days.
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