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Forward versus Money Market Hedge on Receivables. Assume the following information: 180‑day U.S. interest rate =...

Forward versus Money Market Hedge on Receivables. Assume the following information:

180‑day U.S. interest rate = 0.08

180‑day British interest rate = 0.10

180‑day forward rate of British pound = $1.42

Spot rate of British pound = $1.48

Assume that Banc Corp. from the United States will receive 421,000 pounds in 180 days. How much more (or less) would the firm receive in 180 days if it uses a forward hedge instead of a money market hedge?

Solutions

Expert Solution

This from the attached picture, we find that in comparison th3 firm will receive $597,820 in 180 days using forward hedge and $611,751.27 using market hedge.

So the firm would receive $13,931.27 less using a forward hedge.

jeff jeffy answered 4 weeks ago
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