Explore BrainMass

Explore BrainMass

    Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    12. Forward versus Money Market Hedge on Receivables. Assume the following information:

    180-day U.S. interest rate = 8%
    180-day British interest rate = 9%
    180-day forward rate of British pound = $1.50
    Spot rate of British pound = $1.48

    Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge.

    © BrainMass Inc. brainmass.com June 3, 2020, 9:11 pm ad1c9bdddf
    https://brainmass.com/business/finance/assume-that-riverside-corp-from-the-united-states-will-receive-400-000-pounds-in-180-days-170031

    Solution Preview

    ANSWER:

    If the firm uses a forward hedge, it will receive 400,000($1.50) = $600,000 in 180 days.

    If the firm uses a money market hedge, it will borrow ...

    Solution Summary

    This posting provides a detailed solution to the student's International Finance question.

    $2.19

    ADVERTISEMENT