PKA co december 2007

Accounts payable management
PKA Co has used a foreign supplier for the first time and must pay $250,000 to the supplier in six months’ time. The
financial manager is concerned that the cost of these supplies may rise in euro terms and has decided to hedge the
currency risk of this account payable. The following information has been provided by the company’s bank:
Spot rate ($ per €): 1·998 ± 0·002
Six months forward rate ($ per €): 1·979 ± 0·004
Money market rates available to PKA Co:
Borrowing Deposit
One year euro interest rates: 6·1% 5·4%
One year dollar interest rates: 4·0% 3·5%
Assume that it is now 1 December and that PKA Co has no surplus cash at the present time

answer
Six-month dollar deposit rate = 3·5/2 = 1·75%
Current spot selling rate = 1·998 – 0·002 = $1·996 per euro
Six-month euro borrowing rate = 6·1/2 = 3·05%
Dollars deposited now = 250,000/1·0175 = $245,700
Cost of these dollars at spot = 245,700/1·996 = 123,096 euros
Euro value of loan in six months’ time = 123,096 x 1·0305 = 126,850 euros

my answer
deposit 250(1.0175)
convert =ok
borrow the answer now divided by (1.0305)
im confused. I remember the formula this way, borrow= divided, deposit+= multiplie

borrow