Both investments are considered risk free

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Reference no: EM131064018

Plantronics owes Skr 50 million, due in one year, for electrical equipment it recently bought from ABB Asea Brown Boweri. The current spot rate is USD 0.1480/Skr, while the one-year forward rate is USD 0.1436/Skr. Plantronics is uncertain as to which hedging strategy it should select. The company has USD 10 million in a marketable USD CD yielding 7.00% per annum. At the same time, SE Bank of Stockholm offers 10.50% interest on one-year deposits. Both investments are considered risk free (ie. exhibiting zero default risk on part of the issuer).

If Plantronics hedges the liability using a one-year forward market hedge, how much will the company have to pay in one year? State your answer to the nearest USD (e.g. 5,150,000)!

Reference no: EM131064018

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