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Business, 06.05.2020 05:46 lilly9240

Use the following information to calculate the lowest dollar cost to hedge and pay a 200,000 GBP payable due in 180 days. Calculate the cost using a money market hedge, and a forward contract hedge. Assume the firm has no excess cash. The current spot rate of the GBP is GBP USD 2.02, the 180-day forward rate is GBP USD 2.00. The GBP interest rate is 5% on deposits, and the USD interest rate is 5% for borrowing and 2% for deposits. All interest is for 180 days. Dollar cost is defined as the total USD required to satisfy the payable in 180 days. Lowest Dollar Cost to Hedge and pay is:

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