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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