Question
In: Finance
You have a €350,000 receivable. The spot rate is $1.0853/€. The European borrowing interest rate is...
You have a €350,000 receivable. The spot rate is $1.0853/€. The European borrowing interest rate is 2.1% and the U.S. borrowing rate is 2.2%. The European deposit interest rate 2 is 0.8% and the U.S. deposit interest rate is 0.5%. Calculate the dollar amount of a money market hedge.
Solutions
Expert Solution
| Money Market Hedge : | |
| Exposure = | € 350,000.00 |
| Due in 3 months | |
| Creat a liability and settle the liability using receivable | |
| Hence borrow EUR = | 350000/1.021 |
| € 342,801.18 | |
| Borrowing rate | 2.10% |
| Convert the EUR to USD using spot rate | |
| Spot rate = USD 1.0853 / EUR | $ 1.0853 |
| Amount in USD | 342801.18*1.0853 |
| $ 372,042.12 | |
| Invest USD for the period: | |
| US Rate deposit rte | 0.5% |
| Amount realised after investment= | 372042.12*1.005 |
| $ 373,902.33 | |
| Dollar amount of a money market hedge = | |
| $ 373,902.33 |
jeff jeffy answered 2 years agoRelated Solutions
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