Determine how will you hedge the position

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Reference no: EM132002726

Question: The Mnc has an A/P position of Mexican peso 500,000 that is due today. What type of FX transaction is need to take care of these payables? What is the local currency cost? assume a spot ER of MXN 18.8975/ $

The MNC also has an A/P of MXN 500,000 due in 3 months. You know that the peso has been rather volatile in the past one year, with more depreciation than appreciations. your FX dealer tells you there is 6.86% 3 month forward discount on the peso and a 7.37 forward premuim on the dollar. what is the forecast for the 3 month peso-dollar exchange rate, based on peso discount? Verify this by calculating the 3 month dollar premium? do you consider the potential risk significant enought that you have to resort to hedging in the FX market? how will you hedge this position?

Reference no: EM132002726

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