Question

1. Your firm is a U.K.-based exporter of shoes. You have sold an order to a French firm for €1,000,000 worth of shoes. Payment from the French firm (in euro) is due in 12 months. Use a money market hedge to redenominated this one-year receivable into a pound-denominated receivable with a one-year maturity.
   

   Contract Size			Country	U.S. $ equiv.				Currency per U.S. $
   £	10,000		Britain (pound)	$	1.9600			£	0.5102			interest				APR
   			12 months forward	$	2.0000			£	0.5000			rates
   €	10,000		Euro	$	1.5600			€	0.6410				i$		=		1	%
   			12 months forward	$	1.6000			€	0.6250				i€		=		2	%
   SFr.	10,000		Swiss franc	$	0.9200			SFr.	1.0870				i£		=		3	%
   			12 months forward	$	1.0000			SFr.	1.0000				iSFr.		=		4	%

   The following were computed without rounding. Select the answer closest to yours.

   		£72,352.94
   		£803,721.49
   		€800,000
   		£780,312.13

Answer 1

Receivable after one year = Euro 1,000,000

Borrow in Euro = 1,000,000/(1+2%) = Euro 980,392.16

Convert into Pound today = 980,392.16*1.56/1.96

= Pounds 780,312.1248

Invest for one year and get 780,312.13(1+3%) = Pound 803,721.49

Hence, the answer is

£803,721.49