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im a little confused on ex7 we buy $7.8m and put on 3 month deposit which after mature pays the the $8m, we borrow 4.9 pound from bank, put on deposit and repays bank after maturity.
Example 7 states that we have to pay $8m in 3 months. We want to eliminate the foreign exchange risk by using money market hedging. First of all, we have to borrow GBP 4,860,203.Then use GBP to buy $7,874,016 (at 1.6201). Finally, we deposit $7,874,016 at 6.4% p.a. We make $125,984 of interest on the deposit, so in 3 months we will receive exactly $8m, which we can use to settle our obligation. Also, in 3 months time we repay GBP 4,980,493 (including interest).
Amazingly simple explanation that is so easily digestable. Thanks to the tuitor’s exerience and very logical and easy to follow explanations.
dear tutor, i’m trying to get the lecture on money market hedging but it’s not coming up!
also the forward contract did not finish…just played 8minutes!
thanx for huge help
I want to know the real difference between FREE CASH FLOW TO EQUITY and FREE CASH FLOW.
I realise most study kits and examiners get to confuse the definition.
@goodnewskydzramedo, free cash flow to equity means the cash available for shareholders (i.e. after debt interest).
Free cash flow means cash available for all investors – i.e. before debt interest.
the lecture was good but may be due to techn it did not finish after 21min but is generaly helping on revision
Next time wait for the lecture to fully load before you press play
So it will play till the end
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