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Dear John,
Can you please explain the answer (B – $201,602) to this question about the future dollar value of the dinar receipt using a money market hedge?
I am using the following order which gets me the different answer (D).
1 – Borrow PV of 12m dinar => 12m / 1.04 = 11,538,462
2 – Convert to $ => 11,538,462 / 57.52 = 200,599
3 – Deposit $ => 200,599 x 1.05 = $210,629I would be very grateful if you please let me know where I am getting wrong here
Many thanks,
OlgaYou have done everything correctly, except for one thing in your last line.
The $ deposit rate is 0.5%, so you should multiply by 1.005. (You have multiplied by 1.05 which would be 5% 🙂 )
Ah, nooo – it’s a silly mistake and I didn’t spot it.
Thank you very much John, I shall pay more attention during the exam to avoid this oversight.
Can I take this opportunity to say a big thank you to OpenTuition and you personally for the great lectures and an amazing opportunity to communicate with the tutors, and best wishes for continued success.
Kind regards,
Olga
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