Evaluate the optimal strategy of hedging

Reference no: EM1344087

MMHC Inc., a U.S. corporation, has an Euro-denominated account receivable in 180 days. Use the following information to evaluate the optimal strategy of hedging its transactional exposure:

Amount to be received = 1,000,000 Euros

Today's spot exchange rate = $1.33/Euro

Three-month forward rate = $1.29/Euro

MMHC cost of capital = 12%

Euro 180-day borrowing interest rate = 9% p.a.

Euro 180-day investment interest rate = 8% p.a.

$ 180-day borrowing interest rate = 7% p.a.

$ 180-day investment interest rate = 6% p.a.

If MMHC chooses to hedge the exposure in the money markets, how much US$ does it receive today as a result of borrowing in Euros and converting to US$? $ ________ (Note: Do not insert a $ sign, and round your answer to the nearest dollar).

MMHC Inc., a U.S. corporation, has an account payable due in 180 days. Use the following information to determine the optimal strategy of hedging its transactional exposure:

Amount to be paid = 1,000,000 Euros

Today's spot exchange rate = $1.30/Euro

Three-month forward rate = $1.29/Euro

MMHC'c s cost of capital = 12%

Euro 180-day borrowing interest rate = 10% p.a.

Euro 180-day investment interest rate = 9% p.a.

$ 180-day borrowing interest rate = 8% p.a.

$ 180-day investment interest rate = 7% p.a.

If MMHC chooses to hedge the exposure in the money markets, how much US$ does it need to convert to Euros today? $ ________ (Note: Do not insert a $ sign, and round your answer to the nearest dollar).

Reference no: EM1344087

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