SUPPOSE A U.S. FIRM HAS SOLD AN AIRPLANE TO A BRITISH FIRM FOR £2...

107. - BT THANH TOAN QUOC TE MULTINATIONAL FINANCIAL MANAGEMENT DAP AN 107. - BT THANH TOAN QUOC TE MULTINATIONAL FINANCIAL MANAGEMENT DAP AN
BT THANH TOAN QUOC TE MULTINATIONAL FINANCIAL MANAGEMENT DAP AN
107. Suppose a U.S. firm has sold an airplane to a British firm for £20 million payable in one year. The spot exchange rate is $2.00 = £1.00; the one-year forward exchange rate is $2.01 = £1.00. The one-year interest rate in the U.S. is 3 percent and the one-year interest rate in Great Britain is 2.50 percent. Which of the following hedging strategies eliminates the exporter's exchange rate risk? a. Sell £20 million forward at $2.01 = £1.00 b. Since the forward rate is more than the spot rate, use a money market hedge instead of a forward market hedge. c. Borrow £19,512,195.12 from a British lender. Exchange for $39,024,390.24 at the spot exchange rate. In one year, the £20 million receivable will service the loan. d. Both a) and c) are correct.