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Assume the following information 180 day US interest rate = 8% 180 day British interest rate =...

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Finance

Assume the following information

180 day US interest rate = 8%
180 day British interest rate = 9%
180 day forward rate of British pound = 1.50
Spot rate of British pound = 1.48

Assume that Riverside Corp. from the United Stateswill receive 400,000 pounds in 180 days. Would it be better offusing forward hedge or a money market hedge? Substantiate youranswer with estimated revenue for each type of hedge and show allwork.

Answer & Explanation Solved by verified expert
4.0 Ratings (549 Votes)
the 180 day forward hedge rate is 15 pound now that the US firm will recieve 400000 pounds at the forward hedge the firm will receive upon conversion 600000 the calculation in the money market hedge can also be    See Answer
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Transcribed Image Text

Assume the following information180 day US interest rate = 8%180 day British interest rate = 9%180 day forward rate of British pound = 1.50Spot rate of British pound = 1.48Assume that Riverside Corp. from the United Stateswill receive 400,000 pounds in 180 days. Would it be better offusing forward hedge or a money market hedge? Substantiate youranswer with estimated revenue for each type of hedge and show allwork.

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