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(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 comparing the forward hedge and the money market hedge. % when Assumptions 90-day A/R in pounds Value £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.549 3-month U.S. dollar investment rate 13.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.3% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.2% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ $1.5431 per pound ($/£)

(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 comparing the forward hedge and the money market hedge. % when Assumptions 90-day A/R in pounds Value £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.549 3-month U.S. dollar investment rate 13.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.3% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.2% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ $1.5431 per pound ($/£)

Essentials Of Investments
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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(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 comparing the forward hedge and the money market hedge. % when Assumptions 90-day A/R in pounds Value £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.549 3-month U.S. dollar investment rate 13.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.3% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.2% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ $1.5431 per pound ($/£)
Transcribed Image Text:(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 comparing the forward hedge and the money market hedge. % when Assumptions 90-day A/R in pounds Value £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.549 3-month U.S. dollar investment rate 13.000% 3-month U.S. dollar borrowing rate 11.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 9.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.3% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.2% Trident's WACC 14.000% Maria Gonzalez's expected spot rate in 90 days, US$ $1.5431 per pound ($/£)
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