Use some or all of the given information to construct both

Assignment Help Finance Basics

Reference no: EM13477197

A month ago, your company submitted a bid to repair London Bridge, which your 5-year old daughter and her friends had told you was falling down. Your company deals in dollars, but your bid had to be made in British pounds. You were awarded the contract with a bid of £ 10,175,000. You are due to receive 10% of this value today and the rest in 90 days. You will be paid in pounds. You are concerned though that the $/£ exchange rate may move in a direction that is unfavorable to you during the next 90 days, and you wish to hedge your position as best as is possible. Your banker tells you there two ways that you can hedge-with a forward contract or a money market hedge.

Use some or all of the following information to construct both types of hedges and determine which the best one to use is. Also, tell me the present value of the dollar difference between the two hedges.

At the time you prepared your bid, the spot rate was 1.982 $/£.
Today, the spot rate is 1.937 $/£.
Today's 90-day forward rate is 1.92 $/£.
You can borrow or lend pounds at 10% (annualized)
You can borrow or lend dollars at 5% (annualized)

Reference no: EM13477197

Questions Cloud

Create the acquisition analysis as of acquisition date : garth company acquired 70 of the outstanding common stock of brooks company on june 30 2011 for 331100. on that date

Differnce bewteen heavy lift surcharges and long lift : difference betweeen heavy lift surcharges and long lift surcharges. define heavy lift surcharge and long lift

Convert the pound cash flows to dollars at the expected : the annualized interest rate on six-month treasuries is 5 in the u.s. and 8 in great britain. inflation is expected to

Can you make money via triangular arbitrage if you can show : you walk into an international bank with 1000 and observe the following exchange

Use some or all of the given information to construct both : a month ago your company submitted a bid to repair london bridge which your 5-year old daughter and her friends had

Find out the relavent cash flows in euros and use the : your company international widget manufacturers is headquartered in new orleans but is considering expanding its

A share of common stock has just paid dividend of 200 if : a share of common stock has just paid a dividend of 2.00. if the expected long-run growth rate for this stock is 2.0

You realize that the cost of borrowing in a currency other : you are the cfo of a u.s.-based multinational firm. you need to borrow 1 million for six months to meet some working

Both best case scenario and worst case scenario have the 20 : a projects base case or most likely npv is 50000 and assume its probability of occurrence is 60. assume the best case

User Account

All Pages