Question

Mattel is a​ U.S.-based company whose sales are roughly​ two-thirds in dollars​ (Asia and the​ Americas) and​ one-third in euros​ (Europe). In​ September, Mattel delivers a large shipment of toys​ (primarily Barbies and Hot​ Wheels) to a major distributor in Antwerp. The​ receivable, €36 ​million, is due in 90​ days, standard terms for the toy industry in Europe.​ Mattel's treasury team has collected the following currency and market quotes in the table below. The​ company's foreign exchange advisers believe the euro will be at about ​$1.4213​/€ in 90 days.​ Mattel's management does not use currency options in currency risk management activities. Assume a​ 360-day financial year.

Current spot rate ($/€)	$1.4156
Credit Suisse 90-day forward rate ($/€)	$1.4185
Barclays 90-day forward rate ($/€)	$1.4181
Mattel Toys WACC ($)	9.816%
90-day Eurodollar interest rate	4.130%
90-day euro interest rate	3.776%
90-day Eurodollar borrowing rate	5.105%
90-day euro borrowing rate	5.067%

a. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the current spot rate of ​$1.4156​/€​?

b. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the Credit Suisse forward rate of ​$1.4185​/€​?

c. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the Barclays forward rate of $ 1.4181/€ ​?

d. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the expected spot rate of ​$1.4213​/€​?

e. How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Credit Suisse​ 90-day forward​ contract?

f. How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Barclays​ 90-day forward​ contract?

g. How much in U.S. dollars will Mattel receive in 90 days with a money market​ hedge?

Answer 1

a)	Amount to be received = 36000000*1.4156 =	$          5,09,61,600
b)	Amount to be received = 36000000*1.4185 =	$          5,10,66,000
c)	Amount to be received = 36000000*1.4181 =	$          5,10,51,600
d)	Amount to be received = 36000000*1.4213 =	$          5,11,66,800
e)	Amount to be received = 36000000*1.4185 =	$          5,10,66,000
f)	Amount to be received = 36000000*1.4181 =	$          5,10,51,600
g)	The receivable being in Euro, the firm has to
	create a Euro liability which will have a value of
	Euro 36000000 90 days.
	For this, the amount to be borrowed in Euro = 36000000/(1+5.067%/4) =	€          3,55,49,674
	This amount should be convered to $ at spot to get = 35549674*1.4156 =	$          5,03,24,119
	The above amount would be invested for 90 days to get = 50324119*(1+4.130%/4) =	$          5,08,43,716
	Amount receivable under the MMH	$          5,08,43,716