Evaluate the optimal strategy of hedging

Assignment Help Corporate Finance

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

Questions Cloud

Which of the subsequent industries is most such asly : Which of the subsequent industries is most such asly to be monopolistically competitive. A normative economic statement such as "The minimum income should be abolished".

Important questions of finance : Why do you think a company that is considering investing in a long-term project that will not generate any positive cash flow for many years would fund it by issuing zero-coupon bonds?

Groups based on differences in elasticities of demand : Assume which a industry has "pricing power" also can segregate its marketplace into two distinct groups based on differences in elasticities of demand.

Describe the term synergy : Illustrate the term "synergy" and whether or not completed mergers attain synergistic effects as are often anticipated before the merger.

Evaluate the optimal strategy of hedging : Determine the optimal strategy of hedging its transactional exposure - evaluate the optimal strategy of hedging

How can you reconcile the president statement with economic : Based on your answers in a also b, how can you reconcile the president's statement with economics. Can you suggest how his statement could be modified to be consistent with the IS-LM model.

Process for information systems management for organization : Describe the process for Information Systems Management for any organization using clear example.

Multiple choice questions based on price, salary, funds : In 2012, average vehicle in US sold for $42,830. In 2002 the average selling price was $25,313. Calculate the annual increase in the selling price over this time period?

Horizontal-vertical and conglomerate mergers : What are the differences among horizontal, vertical, and conglomerate mergers? What does the U.S. government hope to achieve through the use of its antitrust policy?

User Account

All Pages