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.

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
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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$1.72/€. WACC =
7%
Determine the cost for money market hedging for a cash flow of €6.9 million
due to a supplier in 6 months, and the proceed for money market hedging
for a cash flow of €9.9 million due from a customer in 6 months.
Transcribed Image Text:The Australian Dollar (A$) 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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