QUESTION 3 Assume the U.S. deposit rate for 1 year 11% 12% New Zealand deposit r

Question

QUESTION 3 Assume the U.S. deposit rate for 1 year 11% 12% New Zealand deposit rate for 1 year New Zealand New Zealand dollar forward rate for 1 year New Zealand dollar spot rate 10% S.40 $.39 rate for 1 year Also assume that a US exporter denominates its New Zealand exports in NZS and expects to receive NZS600 000 in l year. You are a consultant be the approximate value of these exports in I year in U.S. dollars given that the firm executes a money market hedge? r this firm. Using the infr ation above what w a a $236,127 Ob$240,000 DC $238,584. d$234,000

Explanation / Answer

Question No.1

Step 1

Option A is Correct

Question No.2

C.Positive if the Forward Premium and Negative Forward Discount

Option C is Correct

Steps Particulars Calculation Amount 1 Future Value of Currency Receivables Given NZ$ 600,000 2 Borrow Present Value of Exposure using Newzealand Inteest Rete+Repay the Maturity using Receivables NZ$ 600000*1/1.10 NZ$ 545,454.55 3 Convert NZ S to $ and Deposit Locallly (i.e USA) NZ$ 545,455.55*0.39 $212,727.27 4 Realise Local Deposit on Maturity date with Interest $212,727*1.11(11% Interest Rate) $ 236,127

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