(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge. Assumptions Value 90-day A/R in pounds £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.546 3-month U.S. dollar investment rate 14.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 8.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.2% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.1% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£) $1.5431
(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge. Assumptions Value 90-day A/R in pounds £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.546 3-month U.S. dollar investment rate 14.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 8.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.2% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.1% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£) $1.5431
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for
| Assumptions | Value | |
| 90-day A/R in pounds | £2,000,000.00 | |
| Spot rate, US$ per pound ($/£) | $1.5610 | |
| 90-day forward rate, US$ per pound ($/£) | $1.546 | |
| 3-month U.S. dollar investment rate | 14.000% | |
| 3-month U.S. dollar borrowing rate | 11.000% | |
| 3-month UK investment interest rate | 8.500% | |
| 3-month UK borrowing interest rate | 9.000% | |
| Put options on the British pound: Strike rates, US$/pound ($/£) | ||
| Strike rate ($/£) | $1.55 | |
| Put option premium | 1.2% | |
| Strike rate ($/£) | $1.54 | |
| Put option premium | 1.1% | |
| Strike rate ($/£) | $1.55 | |
| Call option premium | 2.1% | |
| Trident's WACC | 14.000% | |
| Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£) | $1.5431 |
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