Evaluation of money-market hedge, Financial Management

Assignment Help:

Evaluation of money-market hedge

Expected receipt after 3 months = $300000

Dollar interest rate over three months = 5.4/ 4 = 1.35%

Dollars to borrow now to have $300000 liability after 3 months = 300,000/ 1.0135 = $296004

Spot rate for selling dollars = 1.7820 + 0.0002 = $1.7822 per £

Sterling deposit from borrowed dollars at spot = 296004/ 1.7822 = $166089

Sterling interest rate over three months = 4.6/ 4 = 1.15%

Value in 3 months of sterling deposit = 166089 × 1.0115 = $167999

The forward market is slightly preferable to the money market hedge for the dollar receipt expected after 3 months.


Related Discussions:- Evaluation of money-market hedge

Bajaj Electronics, 1. How would you judge the potential profit of Bajaj Ele...

1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?

What is share exchange, What is Share exchange    Predator company off...

What is Share exchange    Predator company offers their shares in exchange for target company's shares. So target shareholders become part of predator shareholders and so have

Eurodollar, Eurodollar U.S. currency held on deposit in banks located ...

Eurodollar U.S. currency held on deposit in banks located outside the United States, mainly in Europe. Eurodollars are mostly used for settling international transactions outs

Rejecting proposed projects when using internal rate of retu, What is the d...

What is the decision rule for accepting or rejecting proposed projects when using internal rate of return? Whenever the internal rate of return is equal or greater than to the

How financial system works, Question: Part A  The financial syste...

Question: Part A  The financial system is complex in structure and function throughout the world. There are many different types of institutions: banks, insurance compani

''a'' priori probability, 'A' Priori Probability This is a probability ...

'A' Priori Probability This is a probability computed by rationally examining existing information. A priori probability can most simply be explained as making a conclusion on

Asset-backed securities, Introduction When financial assets...

Introduction When financial assets or bonds are pooled together and offered to the investors for receiving the inflow of funds from these underlying

Frankfurt stock exchange, Frankfurt Stock Exchange The roots of the Fran...

Frankfurt Stock Exchange The roots of the Frankfurt Stock Exchange may be traced back to the period of medieval fairs. As early as the middle of the ninth century, Emperor Ludwi

What do disclaimer of opinion, Disclaimer of Opinion - Statement by an AUDI...

Disclaimer of Opinion - Statement by an AUDITOR indicating inability to express an opinion on the fairness of FINANCIAL STATEMENTS provided and reason for the inability. The audito

Benefit and drawback of maintaining many manufacturing sites, Discuss the b...

Discuss the benefits and drawbacks of maintaining multiple manufacturing sites like a hedge against exchange rate exposure. Answer:  To set up multiple manufacturing sites can

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd