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Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 pounds of payables due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $2.02, the 180-day forward rate is $2.00. The British interest rate is 6%, and the U.S. interest rate is 4% over the 180-day period. $351,210. $381,210. $371,210. $400,152

Sagot :

Answer:

$400,152

Explanation:

Given :

Amounts payable = 200,000 pounds

Fuds required = [tex]$\frac{200,000}{1+0.06 \times \frac{180}{360}}$[/tex]

                       = 194,174.76 pounds

Cost of dollars = 194,174.76 x 2.02

                        = $ 392,233

Therefore, the amount borrowed today in dollars = $ 392,233

The payment of loan after the 180 days = [tex]$392,233 \times \left( 1 + 0.04 \times \frac{180}{360}\right)$[/tex]

                                                                  = $ 400,077.67

                                                                 = $ 400,152 (rounding off)

The number of days taken in a year = 360

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