What is the hedged value of the euro receivable

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A Polish corporate treasurer expects to receive a €11 million payment in 90 days from a German customer. The current spot rate is €0.29870:zl1 and the 90-day forward rate is €0.29631:zl1. In addition, the annualized three-month euro and zloty interest rates are 9.8% and 12.3%, respectively.

a. What is the hedged value of the euro receivable using the forward contract?

b. Describe how the Polish treasurer could use a money market hedge to lock in the zloty value of the euro receivable. What is the hedged value of the euro receivable? What is the effective forward rate that the treasurer can obtain using this money market hedge?

c. Given your answers in parts a and b, is there an arbitrage opportunity? How could the treasurer take advantage of it?

d. At what 90-day forward rate would interest rate parity hold?

Reference no: EM13508595

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