Hewlett packard purchased computer chips from siemens a

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Reference no: EM13623182

Hewlett Packard purchased computer chips from Siemens, a German electronics concern, and was billed 5 million Euros payable in three months. Currently, the spot exchange rate is $1.46/Euro and the three-month forward rate is $1.51/Euro. The three-month money market interest rate is 8 percent per annum in the U.S. and 7 percent per annum in Germany. The management of Hewlett Packard decided to use the money market hedge to deal with this Euro account payable.

(a) Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation.

(b) Conduct the cash flow analysis of the money market hedge.

Reference no: EM13623182

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