On February 14, 2012 KD needs to hedge a dividend due on September 15th using...
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Accounting
On February 14, 2012 KD needs to hedge a dividend due on September 15th using a forward rate contract or money market hedge, which is better an why?
Payment coming in is $3 million euro (home currency is $)
KD can typically borrow in the Eurocurrency market at LIBOR + 1% and lend at LIBID.
Euro Money Rate
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1.35 1.40
US Money Rate
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0.7800 .8300
LIBOR 0.75%
LIBID 0.50%
Spot = USD/ EURO = 1.3088
7 month = USD/ EURO = 1.3090
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