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  3. in june 2022 a usa company delivered a large shipm

In June 2022 a USA company delivered a large shipment of care products to a...

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Accounting

In June 2022 a USA company delivered a large shipment of care products to a major distributor in London. The 150 million pounds (GBP) receivable is due in 120 days. The company treasury has received the following currency and market quotes. (Use 360 days convention)

They want to hedge their transaction exposure by using forward or the money market. At what WACC rate the MM hedge pay-off is more than Forward proceeds at the settlement date?

  • Current spot rate ($/) = $1.2666
  • 120-days Forward ($/) = $1.2845
  • 120-day UK borrowing rate = 4.5%
  • 120-day UK investing rate = 3.5%
  • 120-day US borrowing rate = 5.5%
  • 120-day US investing rate = 5%

Select one:

  1. At WACC < 8.80% p.a
  2. At WACC > 8.80% p.a
  3. At WACC < 8.86% p.a
  4. At WACC > 8.86% p.a

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