Question
Viscount Limited (a U.S. firm) is meeting with a Malaysian firm to which you will try to sell supplies. If you receive an order from
Viscount Limited (a U.S. firm) is meeting with a Malaysian firm to which you will try to sell
supplies. If you receive an order from that firm, you intend to obtain a forward contract to hedge
the future receivables in Malaysian ringgit. Currently, the forward rate of the ringgit and spot rate
are the same. You believe that interest rate parity holds. This afternoon, news occurs that makes
you believe that the U.S. interest rates will increase substantially by the end of this month, and that
the Malaysian interest rate will not change. However, your expectations of the spot rate of the
Malaysian ringgit are not affected at all in the future. How will your expected dollar amount of
receivables from the Malaysian transaction be affected (if at all) by the news that occurred this
afternoon? Explain.
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