1. Assume the following information:
U.S. deposit rate for 1 year = 0.09
U.S. borrowing rate for 1 year = .12
New Zealand deposit rate for 1 year = .08
New Zealand borrowing rate for 1 year = 0.09
New Zealand dollar forward rate for 1 year = $.40
New Zealand dollar spot rate = $0.35
Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$612,000 in 1 year. You are a consultant for this firm.
Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge?
2. Use the following information to calculate the dollar cost of using a money market hedge to hedge 217,000 pounds of payables due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $1.98 and the 180-day forward rate is $2.00. The British interest rate is 0.05, and the U.S. interest rate is 0.05 over the 180-day period.
3. Forward versus Money Market Hedge on Payables. Assume the following information:
90-day U.S. interest rate = 0.04
90-day Malaysian interest rate = 0.03
90-day forward rate of Malaysian ringgit = $0.400
Spot rate of Malaysian ringgit = $0.444
Assume that the Santigo Co. in the United States will need 323,521 ringgit in 90 days. It wishes to hedge this payables position. How much more (or less) would the money market hedge cost than the forward hedge?
4. Forward versus Money Market Hedge on Receivables. Assume the following information:
180-day U.S. interest rate = 0.08
180-day British interest rate = 0.09
180-day forward rate of British pound = $1.45
Spot rate of British pound = $1.46
Assume that Rockville Corp. from the United States will receive 418,000 pounds in 180 days. How much more (or less) would the firm receive in 180 days if it uses a forward hedge instead of a money market hedge?