Question

In: Finance

Assume the following information: 90?day U.S. interest rate = 4% 90?day Malaysian interest rate = 3%...

Assume the following information:

90?day U.S. interest rate = 4%

90?day Malaysian interest rate = 3%

90?day forward rate of Malaysian ringgit = $.400

Spot rate of Malaysian ringgit = $.404

Assume that the Santa Barbara Co. in the United States will need 500,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.

Solutions

Expert Solution

please like if you understand the topic. I solved this in both the option (taking interest rate p.a. basis and 90days basis). If yoyou stuck in such situation always assume p.a. basis

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Assume the following information: 90?day U.S. interest rate = 4% 90?day Malaysian interest rate = 3%...
Assume the following information: 90?day U.S. interest rate = 4% 90?day Malaysian interest rate = 3% 90?day forward rate of Malaysian ringgit = $.400 Spot rate of Malaysian ringgit = $.404 Assume that the Santa Barbara Co. in the United States will need 500,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
Assume the following information: 90?day U.S. interest rate = 4% 90?day Malaysian interest rate = 3%...
Assume the following information: 90?day U.S. interest rate = 4% 90?day Malaysian interest rate = 3% 90?day forward rate of Malaysian ringgit = $.400 Spot rate of Malaysian ringgit = $.404 Assume that the Santa Barbara Co. in the United States will need 500,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
assume 1000000 90-day Interest rates in U.S.: 5.5% (annualized) 90-day interest rates in South Africa: 11%...
assume 1000000 90-day Interest rates in U.S.: 5.5% (annualized) 90-day interest rates in South Africa: 11% (annualized) Spot ZAR/USD = 7.8780 90-day Forward ZAR/USD = 7.9685 find Arbitrage profit:
Assume that interest rate parity holds and that 90-day risk-freesecurities yield 4% in the United...
Assume that interest rate parity holds and that 90-day risk-free securities yield 4% in the United States and 4.5% in Germany. In the spot market, 1 euro equals $1.35.What is the 90-day forward rate? Do not round intermediate calculations. Round your answer to four decimal places.$   Is the 90-day forward rate trading at a premium or discount relative to the spot rate?The 90-day forward rate is trading at a  -Select-premiumdiscountItem 2  relative to the spot rate.
Assume the following information: 1 - year U.S. interest rate = 3% 1- year German interest...
Assume the following information: 1 - year U.S. interest rate = 3% 1- year German interest rate = 6% Spot rate of euro = $1.09 What is the central bank likely to do and how will this affect the value of the euro? Without using an exchange rate model, what is your prediction for the one year forward rate given the likely action of Germany’s central bank, all things being equal?    Using the interest rate parity equation, was your...
Assume the following information 180 day US interest rate = 8% 180 day British interest rate...
Assume the following information 180 day US interest rate = 8% 180 day British interest rate = 9% 180 day forward rate of British pound = 1.50 Spot rate of British pound = 1.48 Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. Would it be better off using forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge and show all work.
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 = 1.5% per 180 days or 3% per year compounded semi-annually                 180‑day British interest rate = 1% per 180 days or 2% per year compounded semi-annually                 180‑day forward rate of British pound = $1.32                 Spot rate of British pound = $1.33       Assume that Riverside Corp. from the United States will receive 200,000 pounds in 180 days. Would it be better...
Assume the rate of interest quoted in the 90-day commercial paper market is 4.0%.
  a) Assume the rate of interest quoted in the 90-day commercial paper market is 4.0%. You issued $10 million (face value) of 90-day commercial paper, with an interest rate of 4.0%. i) How much did you borrow? Show the supporting calculations. ii) If you borrowed the same amount in the Eurodollar deposit market and paid 4% interest in that market, how much would you pay back in 90 days? Show the supportingcalculations. [Note: If you couldn’t figure out the...
Assume the following information: 1-year interest rate on U.S. dollars = 11.5% 1-year interest rate on...
Assume the following information: 1-year interest rate on U.S. dollars = 11.5% 1-year interest rate on Singapore dollars = 9.7% Spot rate of Singapore dollar = 0.48 USD/SGD 1-year forward premium on Singapore dollars = 3.64% Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?
Assume the following information: 1-year interest rate on U.S. dollars = 11.4% 1-year interest rate on...
Assume the following information: 1-year interest rate on U.S. dollars = 11.4% 1-year interest rate on Singapore dollars = 9.1% Spot rate of Singapore dollar = 0.4 USD/SGD 1-year forward premium on Singapore dollars = 3.79% Given this information, how much profit can be made with covered interest arbitrage, by borrowing 1 million USD?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT