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A Canadian firm is required to make a payment of $1.75 million in 60 days. The spot exchange rate is 1.2690. The 60 day interest rate on US dollars is 0.85%; the 60 day interest rate on Canadian dollars is 0.55%. Sixty day forward contracts on C$ are available with a forward exchange rate of 1.2685. Call and put options on the C$ are available with strike prices of 0.7850 or 0.7900. For all of the following, be as specific as possible:
a. How would the firm hedge the risk associated with the payment using a money market hedge?
b. How would the firm hedge the risk associated with the payment using a forward contract?
c. How would the firm hedge the risk associate with the payment using foreign exchange options?
d. What is the risk associated with the payment called?
f the yield on 3-year Treasury bonds equals the 1-year yield plus 2%, what inflation rate is expected after Year 1?
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Sorenson Corp.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., wha..
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To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Walter's marginal federal-plus-state tax rate is 40%, and its WACC is 13%. Should it repla..
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