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Mattel is a U.S.-based company whose sales are roughly two-thirds in dollars (Asia and the Americas) and one-third in euros (Europe). In September, Mattel delivers toys (primarily Barbies and Hotel Wheels) to a major distributor in Antwerp. The receivable, 30 million, is due in 90 days, standard terms for the toy industry in Europe. Mattels treasury team has collected the following currency and market quotes. The companys foreign exchange advisors believe the euro will be at about $1.4200/ in 90 days. Mattels management does not use currency options in currency risk management activities. Current spot rate ($/) $1.4158 Credit Suisse 90-day forward rate ($/) $1.4172 Mattel WACC 9.600% 90-day Eurodollar interest rate 4.000% 90-day euro interest rate 3.885% 90-day Eurodollar borrowing rate 5.000% 90-day euro borrowing rate 5.000% a. What steps should Mattel take if it wishes to engage in a money market hedge? b. If Mattel hedges with a money market hedge, what would be the total payback at the end of 90 days? c. If Mattel uses the proceeds from the money market hedge to invest in a Eurodollar investment, what would be the value of the investment at the end of 90 days? d. If Mattel uses the proceeds from the money market hedge to invest in its own operations, what would be the value of the investment at the end of 90 days? e. If Mattel chooses to hedge its foreign currency transaction exposure using a forward hedge, what would be the total receipt at the end of 90 days? f. Should Mattel select a money market hedge investing in euros, money market hedge investing in its operations, or a forward hedge? Justify your response. g. If Mattel uses a money market hedge, what would be the foreign exchange transaction gain or loss? h. If Mattel uses a forward hedge, what would be the foreign exchange transaction gain or loss? i. If Mattel uses a naked hedge, what would be the foreign exchange transaction gain or loss? j. At what investment rate would Mattel be indifferent between the money market hedge and the forward hedge?

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