How to utilize the money market tools to hedge the risk

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Reference no: EM131927458

Boeing imported a Rolls-Royce jet engine for £5 mil payable in one year

-The US interest rate 6.00% per annum

-The UK interest rate 6.50% per annum

-The Spot exchange rate $ 1.80/£ today

1. Assume the strike price of the option is $1.82/£ with a premium of $.02/£ paid today. What is the dollar cost one year later if the spot rate then is 1.60 and 2.00 respectively?

2. How to utilize the money market tools to hedge the risk of pound exchange one year later? In particular, answer which loan (US or UK) to borrow and to lend? How much is the dollar cost one year later (a number you would know today)?

Reference no: EM131927458

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