Question

BXP Inc., a UK importing firm anticipates an outflow of 186 million Danish Krone (DKK) in 6 months. BXP’s managers are worried about the course of the DKK/£ exchange rate over the next 6 months and they decide to hedge. The current spot and forward rates are S0=6.1718 DKK/£ and Ft=6 months=6.2035 DKK/£. BXP can borrow/lend at a £-interest rate of 3.57% and a DKK-interest rate of 5.15%.

Calculate the 6-month ahead cash flow BXP can lock in with the money market hedge.

Answer 1