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Use the following information to calculate the dollar revenue of using a forward hedge and money market hedge to hedge 500,000 pounds of receivables due
Use the following information to calculate the dollar revenue of using a forward hedge and money market hedge to hedge 500,000 pounds of receivables due in 90 days. Assume the current spot rate of the pound is $2.02/pound and the cost of capital of the firm is 10% per annum. The 90-day forward rate is $1.98/pound. The interest rates information is as follows: U.S. UK 90-day borrowing rate 8% per annum 7% per annum 6% per annum 90-day deposit rate 7% per annum PLEASE SHOW ACTIONS TAKEN UNDER EACH HEDGE. Which hedge is a better choice? Is there a breakeven spot rate that makes you indifferent between the two hedges? If yes, what is the break-even spot rate
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