FIN4802 Assignment 1 Answers - Yearly Module , 2026 | Due Date 21 May 2026

, FIN4802 ASSIGNMENT 1 2026 ANSWERS - DUE DATE 21 MAY | 662810



QUESTION ONE



1. (a)

Jones Corp expects to receive €1,000,000 in one year and has no cash on hand, so it uses a
money market hedge by borrowing euros today.


Description Calculation Result

Euro borrowing rate Given 6%

Present value of euro inflow (borrowed amount) €1,000,000 ÷ 1.06 €943,396


The borrowed euros are converted into dollars at the spot rate:


Description Calculation Result

Spot rate $1.20

Dollar proceeds €943,396 × 1.20 $1,132,075


The dollar amount is invested at the US deposit rate:


Description Calculation Result

US deposit rate 8%

Future dollar
$1,132,075 × 1.08 $1,222,641
value


Final Answer (a):
$1,222,641