Question

. Assume 1 year U.S. deposit rate = 11% 1 year U.S. borrowing rate = 12%...

. Assume

1 year U.S. deposit rate

=

11%

1 year U.S. borrowing rate

=

12%

1 year UK deposit rate

=

8%

1 year UK borrowing rate

=

10%

BP forward rate for 1 year

=

$.40

BP spot rate

=

$.39

La Verne Corp is a U.S. MNC expecting to receive BP 600,000 in 1 year.

Should La Verne Co. use a Money Market Hedge or a forward hedge?

a.

Money market hedge

b.

Forward hedge

c.

Either money market or forward hedge

d.

Not enough information to answer

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