Under money market hedge, following will be undertaken:
Receivables = Euro 1,000,000
Borrow in Euro such amount that amount with interest reaches the amount receivable after one year = 1000,000/(1.05) = Euro 952,381
Convert into USD at spot rate and get 952,381*1 = USD 952,381
Invest in USD and get after one year = 952,381*1.03 = USD 980,952
Amount receivable in euro will be used to pay off loan
Hence, the answer is A)
6) Suppose your U.S. firm will receive EUR1,000,000 in one year. The interest rate on the...
5) The WSJ Dollar Index A) measures stock performance of 500 large companies listed on the stock exchange. B) is composed of 16 currencies that make up 80% of the Forex market. C) was created in 2001. D) All of the above. 6) Suppose your U.S. firm will receive EUR1,000,000 in one year. The interest rate on the euro is 5% pa and on the U.S. dollar is 3% pa. The current spot rate for the euro is $1.00. If...
8) Assume the USD depreciates against the EUR. Which scenario best describes the FX exposure(s) for a U.S. MNC? A) The USD value of the firm's EUR sales increases. B) The earnings at the firm's French subsidiary increase when added to the consolidated financial statements. C) Consumers in Europe buy more U.S. goods. D) All of the above. 9) Suppose your U.S. firm will receive EUR 1,000,000 in one year. The interest rate on the euro is 5% p.a. and...
Blake Inc., a U.S. MNC, needs to pay EUR1,000,000 in one year. It can earn 2 percent annualized on a German security. The current spot rate for the euro is USD1.00 per euro. Blake can borrow funds in the U.S. at an annualized interest rate of 0 percent. If Blake uses a money market hedge to hedge the payable, what is the cost of implementing the hedge (rounded to the nearest dollar)? $980,392 None of the answers is correct. $1,000,000....
QUESTION 20 Blake Inc., a U.S. MNC, needs to pay EUR1,000,000 in one year. It can earn 2 percent annualized on a German security. The current spot rate for the euro is USD1.00 per euro. Blake can borrow funds in the U.S. at an annualized interest rate of O percent. If Blake uses a money market hedge to hedge the payable, what is the cost of implementing the hedge (rounded to the nearest dollar)? $980,392 None of the answers is...
Samson inc will receive EUR 1 000 000 in one year. The interest rate on the euro is 3% p.aa and on the US dollar is 5%. The current spot rate for the euro is $1.00. If Samson uses a money market, how much will the hedge cost approximately?
QUESTION 1 A U.S. MNC will receive 1 million Indian rupees (INR) in one year. The current spot rate is INR75 /USD and the one year forward rate is INR320/USD. The annual interest rate is 5 percent in India and 0 percent in the United States. The dollar amount the firm will receive using the forward hedge is USD 75,000,000 USD 13,333 USD 3,125. None of the answers is correct. QUESTION 2 Suppose that Boeing Corporation exported a Boeing 747...
A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65 per euro. They paid an option premium $0.01 per euro and the interest rate on the U.S. dollar is 5% per year. If at maturity the exchange rate is $1.70, the total proceeds to the firm are: $1,700,000 $1,690,000 $1,689,500 None of the...
A U.S. firm has a debt obligation of ¥ 194 million payable in one year. The current spot rate is ¥ 116 per U.S. dollar and the one-year forward rate is ¥ 110 per U.S. dollar. Additionally, a one-year Call option on the Yen with a strike price of $0.0085 per yen can be purchased for a premium of 0.011 cent per yen. The risk-free money-market rate in Japan is 1.6% and the risk-free money-market rate in the U.S. is...
Hedging Decision. Indiana Company expects to receive 5 million euros in one year from exports. It can use any one of the following strategies to deal with the exchange rate risk. Estimate the dollar cash flows received as a result of using the following strategies: a) unhedged strategy b)money market hedge c)option hedge The spot rate of the euro as of today is $1.10. Interest rate parity exists. Indiana Company uses the forward rate as a predictor of the future...
1. Assume the following information: U.S. deposit rate for 1 year = 11% U.S. borrowing rate for 1 year = 12% New Zealand deposit rate for 1 year = 8% New Zealand borrowing rate for 1 year = 10% New Zealand dollar forward rate for 1 year = $.40 New Zealand dollar spot rate = $.39 Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$600,000 in 90 days. You are a...