Explore BrainMass
Share

# Money Market Hedge

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.

#### Solution Preview

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 ...

#### 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.

\$2.19