Money Market Hedge Assignment | Homework For You
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: Deposit rate Borrowing rate U.S. 6% 7% Europe 8% 9% The spot exchange rate of the euros is US$1.10; the one-year forward rate of the euros is US$1.05.
(6) Identify and explain ONE reason, other than hedging cost, why money market hedge is more preferable than forward hedge. (4 marks) Get Finance homework help today