Money Market Hedge
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Assume that Hester Company has net payables of 500,000 Mexican pesos that are due in 180 days. The interest rate in Mexico is 8 percent over 180 days, and the U.S. interest rate is 4 percent over 180 days. The spot rate of the Mexican peso is $0.10.
Describe the steps to take for a money market hedge. You need to show clearly the amounts that are related to the actions to take.
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Solution Summary
The solution describes and explains the steps to take for a money market hedge. To achieve this, spot rates and interest rates in Mexican Pesos and U.S. dollars are used.
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Please see the attached Excel file.
Assume that Hester Company has net payables of 500,000 Mexican pesos that are due in 180 days. The interest rate in Mexico is 8 percent over 180 days, and the U.S. interest rate is 4 percent over 180 days. The spot rate of the Mexican peso is $0.10.
Describe the steps to take for a money market hedge. You need to show clearly the amounts that are related to the actions to take.
Interest rates are quoted on a per annum (for a year) basis.
Therefore, for 180 ...
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