Finance Question
ProfArgeol
assume_the_following_information.docx
1. Assume the following information:
|
U.S. deposit rate for 1 year |
= |
10% |
|
U.S. borrowing rate for 1 year |
= |
12% |
|
New Zealand deposit rate for 1 year |
= |
8% |
|
New Zealand borrowing rate for 1 year |
= |
10% |
|
New Zealand dollar forward rate for 1 year |
= |
$.40 |
|
New Zealand dollar spot rate New Zealand dollar strike price Call premium Put premium |
= = |
$.40 $.42 $.02 $.01 |
Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$700,000 in 1 year. You are a consultant for this firm. Compare the money market hedge and the option hedge. Make sure to indicate the value of NZ$ at which the U.S. exporter will be indifferent between the two hedging strategies as part of your answer.
