Evaluation of money-market hedge, Financial Management

Assignment Help:

Evaluation of money-market hedge

Expected receipt after 3 months = $300000

Dollar interest rate over three months = 5.4/ 4 = 1.35%

Dollars to borrow now to have $300000 liability after 3 months = 300,000/ 1.0135 = $296004

Spot rate for selling dollars = 1.7820 + 0.0002 = $1.7822 per £

Sterling deposit from borrowed dollars at spot = 296004/ 1.7822 = $166089

Sterling interest rate over three months = 4.6/ 4 = 1.15%

Value in 3 months of sterling deposit = 166089 × 1.0115 = $167999

The forward market is slightly preferable to the money market hedge for the dollar receipt expected after 3 months.


Related Discussions:- Evaluation of money-market hedge

Income statement and balance sheet, The following are extracts of the Incom...

The following are extracts of the Income Statement and Balance Sheet for Umar plc. Extract Balance Sheet at 30 June 20X2               20X1 £'000  £'000                £

Purpose of Issue-CDs, Purpose of Issue CDs benefit both issuers and inve...

Purpose of Issue CDs benefit both issuers and investors. From the issuers (banks) point of view, CDs are issued foreseeing the advantages over conventional deposits. The motives

Future value, (a).At the end of three years, how much is an initial deposit...

(a).At the end of three years, how much is an initial deposit of $100 worth, assuming a compound annual interest rate of (i) 100 percent? (ii) 10 percent? (iii) 0 percent? (b).b. A

Example on bills of exchange, Q. Example on Bills of exchange? ARG Co w...

Q. Example on Bills of exchange? ARG Co will be apprehensive to protect the sterling value of its expected dollar receipt. The quoted forward rates demonstrate that the dollar

Venture Capital, Difference between venture capital and conventional financ...

Difference between venture capital and conventional financing

Advantages of trade credit, Q. Advantages of Trade Credit? i) Easy Avai...

Q. Advantages of Trade Credit? i) Easy Availability: Unlike other sources of finance, trade credit is relatively easy to obtain. Except in the case of financially very unsou

What do you mean by public deposits, Q. What do you mean by Public deposits...

Q. What do you mean by Public deposits? Public deposits are the fixed deposited by the business enterprises directly from the company. This source of the raising the short term

Private sector securities - inter corporate investments, Corporates g...

Corporates generally raise funds from the Inter Corporate Deposit (ICD) markets. These instruments generally carry interest rates higher than the other short-term

Employees’ provident fund, Employees' Provident Fund (EPF) The Employee...

Employees' Provident Fund (EPF) The Employees' Provident Fund (EPF) Act, 1952 is the earliest legislation related to old age income security in India. It is a contributory prov

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd