Suppose PepsiCo hedges a ¥1 billion dividend it expects to receive from its Japanese subsidiary in 90 days with a forward contract. The current spot rate is ¥120/$1 and the 90‑day forward rate is ¥129/$1. If the spot rate in 90 days is ¥125/$, how much has this forward market hedge cost PepsiCo?
Suppose PepsiCo hedges a ¥1 billion dividend it expects to receive from its Japanese subsidiary in 90 days with a forward contract. The current spot rate is ¥120/$1 and the 90‑day forward rate is ¥129/$1. If the spot rate in 90 days is ¥125/$, how much has this forward market hedge cost PepsiCo?
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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Question
Suppose PepsiCo hedges a ¥1 billion dividend it expects to receive from its Japanese subsidiary in 90 days with a forward contract. The current spot rate is ¥120/$1 and the 90‑day forward rate is ¥129/$1. If the spot rate in 90 days is ¥125/$, how much has this forward market hedge cost PepsiCo?
Group of answer choices
$581,395
Pepsi gains $581,395 from the forward contract
$248,062
Pepsi gains $248,062 from the forward contract
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