Hello I need assistance answering these 3 multiple choice qu

Hello,

I need assistance answering these 3 multiple choice questions.

Questions 3. 4. O 180-day U.S. interest rate s. O 180-day forward rate of Fijian dollar (F) 49% 5% $0.49 $0.48 6. O Expected spot rate of Fijian dollar in 90 days $0.47 180-day Fijian interest rate Spot rate of Fijian dollar Assume that Monte Christo Corporation in the U.S. will receive 500,o0o Fijian dollars in 18o days What amount will Monte Christo receive in 180 days if it implements a money market hedge and invests any funds received as soon as possible? O a. $237,714 O b. $221,893 10 c. $242,308 O d. $232,762

Solution

1) The currency rat after 180 days would be 0.48*(1.04/1.05) = 0.475429.

So the amount of 500000 fujian dollar if invested by money market hedge, Monte would receive 500000*0.475429= $237714

2) A money market hedge on payables would involve, among others, borrowing the foreign currency and investing in the US.

3) Some hedges lock into the rate at which the foreign currency can be bought or sold in the future. Thus, the cost of hedging may depend on the future spot rate when using the currency option hedge