In June 2022 a USA company delivered a large shipment of care products to a...
50.1K
Verified Solution
Link Copied!
Question
Accounting
In June 2022 a USA company delivered a large shipment of care products to a major distributor in London. The 150 million pounds (GBP) receivable is due in 120 days. The company treasury has received the following currency and market quotes. (Use 360 days convention)
They want to hedge their transaction exposure by using forward or the money market. At what WACC rate the MM hedge pay-off is more than Forward proceeds at the settlement date?
Current spot rate ($/) = $1.2666
120-days Forward ($/) = $1.2845
120-day UK borrowing rate = 4.5%
120-day UK investing rate = 3.5%
120-day US borrowing rate = 5.5%
120-day US investing rate = 5%
Select one:
At WACC < 8.80% p.a
At WACC > 8.80% p.a
At WACC < 8.86% p.a
At WACC > 8.86% p.a
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
