A U.S. firm has to pay Euros 400,000 in 1-year. The firm decides to hedge...
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A U.S. firm has to pay Euros 400,000 in 1-year. The firm decides to hedge foreign exchange risk using a 100% money market hedge. The 1-year risk free rate in US is 4% and 3% in Euros. The US firms 1-year borrowing rate in USD is 6.5% and 5.5% in Euros. The current spot rate is $1.10/Euros. If the spot rate in 1 year turns out to be $1.25/Euros, how much U.S. dollars would be needed to payoff the Euros
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