Question

11)

Trident — the same U.S.-based company discussed in this chapter, has concluded a second larger sale of telecommunications equipment to Regency (U.K.). Total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, how much is the dollar receipt of money market hedge at the end of 90 days?

Assumptions		Value
90-day A/R in pounds		£2,000,000.00
Spot rate, US$ per pound ($/£)		$1.5610
90-day forward rate, US$ per pound ($/£)		$1.5421
3-month U.S. dollar investment rate		4.000%
3-month U.S. dollar borrowing rate		6.000%
3-month UK investment interest rate		4.500%
3-month UK borrowing interest rate		8.000%
Put options on the British pound: Strike rates, US$/pound ($/£)
Strike rate ($/£)		$1.55
Put option premium		1.500%
Strike rate ($/£)		$1.54
Put option premium		1.000%
Strike rate ($/£)		$1.55
Call option premium		2.500%
Trident's WACC		9.000%
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£)		$1.5431

Select one:

a.

$3,160,638.61

b.

$3,000,000.00

c.

$3,156,731.77

d.

$3,145,068.97

e.

$3,129,651.96

Answer 1

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