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Calculate the implied exchange rate

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Assume that VN Co. has net payables of £200,000 in 60 days. The UK interest rate is 2 percent over 60 days, and the spot rate of the British Pound is $ 1.30. The US interest rate is 3 percent over 60 days. Suggest whether the U.S. firm should implement a money market hedge or enter a forward contract or purchase an option to hedge the payable. The relevant 60-day forward rate is $1.34. The option has a strike price of $1.32 and a premium of $ 0.025. Also calculate the implied exchange rate. Please show the necessary calculations.

Reference no: EM132531372

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