An American firm is owed A$2,000,000.00 payable in one year. The current spot it $1.7500/A$....
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An American firm is owed A$2,000,000.00 payable in one year. The current spot it $1.7500/A$. An Australian bank is paying 3.50% on deposits or will lend at 4.50%. A U.S. bank is paying 4.50% or will lend at 8.50%. The firm will hedge this exposure with money market hedging. How much will they get in one year?
(a) $3,349,282.30 (b) $3,500,000.00 (c) $3,797,500.00 (d) $3,633,971.30
The answer is (b) $3,500,000.00, need help with the math.
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