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Hello Sir!
Regarding the steps of calculating the amount to be received/paid using money market hedge, I’m getting different answer opposed to the examiner’s.
For example: in Kenduri (Jun ’13) qn, for the payment of $2.4 m the first step is to use deposit of foreign exchange rate (in my opinion). While instead the examiner used the borrow rate of foreign exchange rate.
In our college and your lecture notes, we have used the same approach I’ve illustrated.
Can you please clarify which to be appropriate?
Thank you.
You are correct in saying that the deposit rate should be used to decide how many $’s to invest to cover the payment of $2.4M.
But that is what the examiner has done – he has used 3.1% to determine how many US$’s need depositing.
It is exactly as I show in my lectures when we are paying foreign currency (as is the case here) 🙂
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