Question

If you owe SF1,000 in one year, based on the data below, how many dollars will...

If you owe SF1,000 in one year, based on the data below, how many dollars will it cost you to meet this obligation in one year if you use a money market hedge?

S = $0.9250/SF

F = $0.9510/SF

US int rate = 0.06

SF int rate = 0.04

Group of answer choices

$943

$951

$889

$908

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Homework Answers

Answer #1

Step1:

Make an investment in SF, whose maturity is SF 1000 in one year.

Dep required = SF 1000 / (1+ 0.04)

= SF 1000 / 1.04

= SF 961.54

Borrow amount Required for SF 961.54 in USD.

Amount Required in USD = 961.54 * 0.9250

= USD 889.42

Maturity value of USD loan after 1 Year = Loan ( 1 + r)

= USD 889.42 * ( 1 + 0.06 )

= USD 889.42 * (1.06 )

= USD 942.79

Option A is correct.

Pls do rate, if the answer is correct and comment, if any further assistance is required.

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