Question

SRI Co. is a Sri Lankan MNC. SRI Co. expects to receive $750,000 in a year from a U.S. customer. Current spot rate is Rs. 177.0 per $. SRI Co. can borrow funds in the U.S. at 5 percent and invest funds in the U.S. at 4.5 percent. SRI Co. can borrow funds in Sri Lanka at 8 percent and invest funds in Sri Lanka at 6.5 percent. SRI Co. would like to hedge all the exchange rate risk from the receivables. What is the approximate value of the receivables if SRI Co. use a money market hedge? A. Rs. 143 million. B. Rs. 139 million. C. Rs. 137 million. D. Rs. 135 million. E. Rs. 131 million.

Answer 1