(5)Assume the following information:90-day U.S. interest rate90-day Malaysian interest rate90-day forward rate of the RinggitSpot rate for the Ringgit4%3%$0.400$0.404Assume ABC based in NYC needs 600,000ringgits in 90 days to pay for its imports andwishes to hedge its payable position. Would itbe beneficial to engage in forward hedge or amoney market hedge? Hint: Find the cost foreach type of Hedge and compare the results.

ABC needs 600000 ringgits in 90 days for imports it is an payable for ABC in money market hedging…

Answered: (5)Assume the following information:…

(5)Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 90-day forward rate of the Ringgit 4% 3% $0.400

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

(5)Assume the following information:
90-day U.S. interest rate
90-day Malaysian interest rate
90-day forward rate of the Ringgit
Spot rate for the Ringgit
4%
3%
$0.400
$0.404
Assume ABC based in NYC needs 600,000
ringgits in 90 days to pay for its imports and
wishes to hedge its payable position. Would it
be beneficial to engage in forward hedge or a
money market hedge? Hint: Find the cost for
each type of Hedge and compare the results.

Expert Solution

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Step 1: money market hedging

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The Australian Dollar (A$) 6-month borrowing rate is 7.50% per annum and the Australian Dollar (A$) 6-month investment rate is 4.50% per annum. The Euro (€) 6-month borrowing rate is 5.40% per annum and the Euro (€) 6 - month investment rate is 2.18% per annum. An Australian company is expecting to use money market hedging both for its account payables and account receivables. The current spot rate is A$1.72/€. WACC = 7% Determine the cost for money market hedging for a cash flow of €6.9 million due to a supplier in 6 months, and the proceed for money market hedging for a cash flow of €9.9 million due from a customer in 6 months.
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i will 10 upvotes urgent Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The following information is available in current and forward markets: 180‑day U.S. 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 How much will Riverside Corp. receive in dollars in 180 days fare if it uses a money market hedge for the 400,000 pounds? Please show your steps, thank you!
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A 14. Subject:- finance
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