INTERNATIONAL FINANCE- PLEASE WRITE OUT YOUR CALCULATIONS 1) Assume the followin
ID: 2615885 • Letter: I
Question
INTERNATIONAL FINANCE- PLEASE WRITE OUT YOUR CALCULATIONS
1) Assume the following information: = 11% U.S. deposit rate for 1 year U.S. borrowing rate for 1 year New Zealand deposit rate for 1 year New Zealand borrowing rate for 1 year 10% New Zealand dollar forward rate for 1 year-$.40 New Zealand dollar spot rate 8% -$.39 Also assume that a U.S. exporter d NZS600,000 in 1 year. You are a consultant for this firm. nates its New Zealand exports in NZS and expects to receive Using the information above, what will be the approximate value of these exports in 1 year in U.S dollars given that the firm executes a money market hedge?Explanation / Answer
You are Exporter here & Expected to Receive NZ$ 600,000 in a year.
Step1: Make a loan in NZ, whose maturityn equal to Exposure ( NZ$ 600,000)
Thus Make a borrowing of 600000 / ( 1 + 0.10)
We are discounting with borrowing rate , so that its maturity equal to 600000 after 1 year
Borrowed amount = NZ$ 545454.54
Step2: COnvert NZ$ in to USD using spot rate
= 545454.54 * 0.39
= USD 212727.27
Step 3:
Invest the fund s in US & Realize the maturity after 1 Year
= 212727.27 * ( 1+1.11)
= 212727.27 * 1.11
= 236127.27
AMount cane be received after a year by the firm under Money Market Hedge is " $ 236,127.27"
Pls comment, if any further assistance is required.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.