Herd Co is based in a country whose currency is the dollar ($). The company...
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Herd Co is based in a country whose currency is the dollar ($). The company expects to receive 1,500,000 in six months time from Find Co, a foreign customer. The finance director of Herd Co is concerned that the euro () may depreciate against the dollar before the foreign customer makes payment and she is looking at hedging the receipt. Herd Co has in issue loan notes with a total nominal value of $4 million which can be redeemed in 10 years' time. The interest paid on the loan notes is at a variable rate linked to LIBDR. The finance director of Herd Co believes that interest rates may increase in the near future. The spot exchange rate is 1.543 per $1. The domestic short-term interest rate is 2% per year, while the foreign short-term interest rate is 5% per year. As regards the euro receipt, what is the primary nature of the risk faced by Herd Co? Translation risk. B Transaction risk. Business risk. Economic risk
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