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Forward Hedge Assignment | Homework For You

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January 31st, 2020

ErrorGo is an U.S. firm and needs to pay €2,000,000 bank loan after one year and would like to hedge the exchange rate risk oHomework For You

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ErrorGo is an U.S. firm and needs to pay €2,000,000 bank loan after one year and would like to hedge the exchange rate risk of euros. The company prefers adopting hedging strategies without initial cash outlays. The following annual money market rates are available: U.S. 6% Europe 8% Deposit rate Borrowing rate 7% 9% The spot exchange rate of the euros is US$1.10; the one-year forward rate of the euros is US$1.05.

(a) Determine how much U.S. dollars would ErrorGo uses if she hedged her Euro position by using: a forward hedge.

(i) (2 marks) (5 marks)

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(ii) a money market hedge. Get Finance homework help today

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