Cmpare money market hedge and option hedge ensure to

Reference no: EM13476687

Assume the following information:

U.S. deposit rate for 1 year	=	10%
U.S. borrowing rate for 1 year	=	12%
New Zealand deposit rate for 1 year	=	8%
New Zealand borrowing rate for 1 year	=	10%
New Zealand dollar forward rate for 1 year	=	$.40
New Zealand dollar spot rate New Zealand dollar strike price Call premium Put premium	= =	$.40 $.42 $.02 $.01

Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$700,000 in 1 year. You are a consultant for this firm. Compare the money market hedge and the option hedge. Make sure to indicate the value of NZ$ at which the U.S. exporter will be indifferent between the two hedging strategies as part of your answer.

Reference no: EM13476687

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