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Three months:
Paying €650,000 for imported goods
Six months:
Receiving 12 million dinars for exported capital goods
Park Co has the following exchange rates and interest rates available to it:
Spot exchange rate (dinars per $1): 57·31 . 57·52
Six-month forward rate (dinars per $1): 58·41 . 58·64
Spot exchange rate (€ per $1):1·544 . 1·552
Borrow . Deposit
Dinars . 4.0% . 2.0%
Dollars . 2.0% . 0.5%
What is the future dollar value of the dinar receipt using a money market hedge?
a.$197,752
b.$201,602
c.$208,623
d.$210,629
as per correct answer it is option b
but as per my calculation it is d.
please tell me
1. for receipts we first borrow dinar at rate of 4% (so divide dinar with 1.04) and then convert it at exchange rate of 57.52(divide borrowed amount with spot rate) and then deposit in dollar at rate of 0.5%(multiply with 1.5)…am i right??
what CBE exams solution given is which i am not getting….
“Dollar value = (12m x 1.005)/(1.04 x 57.52) = $201,602”
Yes you are right but its 0.5% so multiply by 1.005 as in the solution and not 1.5 (that would be 50%). Hope this makes sense
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