Assume the following information to calculate the dollar cos

Assume 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 5%, and the US. interest rate is 4% over the 180-day period. Oa $391,210 Ob.$396,190 O$388,210 Od none of the above

Solution

Answer : e) none of the above

Explanation:

Amount needed to be invested = 190476 pounds (200000/1.05)

Amount needed to be exchanged = $384762 (190476 × 2.02)

At the end of 180 days , amount need to replay loan = $400152 ($384762*1.04)

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