MMHC Inc., a U.S. corporation, has an Euro-denominated account receivable in 180 days. Use the following information to evaluate the optimal strategy of hedging its transactional exposure:
Amount to be received = 1,000,000 Euros
Today's spot exchange rate = $1.33/Euro
Three-month forward rate = $1.29/Euro
MMHC cost of capital = 12%
Euro 180-day borrowing interest rate = 9% p.a.
Euro 180-day investment interest rate = 8% p.a.
$ 180-day borrowing interest rate = 7% p.a.
$ 180-day investment interest rate = 6% p.a.
If MMHC chooses to hedge the exposure in the money markets, how much US$ does it receive today as a result of borrowing in Euros and converting to US$? $ ________ (Note: Do not insert a $ sign, and round your answer to the nearest dollar).
MMHC Inc., a U.S. corporation, has an account payable due in 180 days. Use the following information to determine the optimal strategy of hedging its transactional exposure:
Amount to be paid = 1,000,000 Euros
Today's spot exchange rate = $1.30/Euro
Three-month forward rate = $1.29/Euro
MMHC'c s cost of capital = 12%
Euro 180-day borrowing interest rate = 10% p.a.
Euro 180-day investment interest rate = 9% p.a.
$ 180-day borrowing interest rate = 8% p.a.
$ 180-day investment interest rate = 7% p.a.
If MMHC chooses to hedge the exposure in the money markets, how much US$ does it need to convert to Euros today? $ ________ (Note: Do not insert a $ sign, and round your answer to the nearest dollar).