--+-
+-
MSSl6NMENT1 1
- • lll.L QUES ll!INS FlllLL~ ANf WERED -+-----+----
~~ DUE: 21 MAY 2D21~--!-i-~
DISCLAIMER: 1 j
- rKr~rltUMENT
1
I DR7lEFEREN---cEANDuUl CE PUR SE
ACADEMIC MISCONDUCT RESULTING FROM TH IR USE. IT IS YOUR
_IIESPDNs1e1L1TY T_!l_ ENsut o~INALJTY AN COMPLIANCE WITH
t
ONLY. 1D0 NDTtTAKE RESPbNSIBIL!ITY~FDR AN~ PLAGIARl~M. tMISUSE. DR
_
~
~
+
RELEVANT GUIDELINES DR STANDARDS. t
, PLEASE USE THIS DOCUMENT AS A GUIDE ONLY
QUESTION 1
(a) Determine the dollar cash flows to be received if Jones uses a money market hedge.(Assume
Jones does not have any cash on hand)
A money market hedge for a receivable involves borrowing the foreign currency today, converting it
to dollars, and using the future receivable to pay off the loan. Since Jones Corp. has no cash on hand,
we follow these steps:
Determine the amount to borrow in Euros:
Jones needs to borrow an amount that, with interest, will equal 1,000,000 Euros in one year. We use
the Eurozone borrowing rate (6%).
Convert the borrowed Euros to U.S. Dollars:
Use the current spot rate of $1.20.
943,396.23×1.20=$1,132,075.48
Invest the Dollars in the U.S. market:
Deposit the dollars at the U.S. deposit rate (8%) for one year.
$1,132,075.48×(1+0.08)=$1,222,641.52
Total Dollar Cash Flow (Money Market Hedge): $1,222,641.52
+-
MSSl6NMENT1 1
- • lll.L QUES ll!INS FlllLL~ ANf WERED -+-----+----
~~ DUE: 21 MAY 2D21~--!-i-~
DISCLAIMER: 1 j
- rKr~rltUMENT
1
I DR7lEFEREN---cEANDuUl CE PUR SE
ACADEMIC MISCONDUCT RESULTING FROM TH IR USE. IT IS YOUR
_IIESPDNs1e1L1TY T_!l_ ENsut o~INALJTY AN COMPLIANCE WITH
t
ONLY. 1D0 NDTtTAKE RESPbNSIBIL!ITY~FDR AN~ PLAGIARl~M. tMISUSE. DR
_
~
~
+
RELEVANT GUIDELINES DR STANDARDS. t
, PLEASE USE THIS DOCUMENT AS A GUIDE ONLY
QUESTION 1
(a) Determine the dollar cash flows to be received if Jones uses a money market hedge.(Assume
Jones does not have any cash on hand)
A money market hedge for a receivable involves borrowing the foreign currency today, converting it
to dollars, and using the future receivable to pay off the loan. Since Jones Corp. has no cash on hand,
we follow these steps:
Determine the amount to borrow in Euros:
Jones needs to borrow an amount that, with interest, will equal 1,000,000 Euros in one year. We use
the Eurozone borrowing rate (6%).
Convert the borrowed Euros to U.S. Dollars:
Use the current spot rate of $1.20.
943,396.23×1.20=$1,132,075.48
Invest the Dollars in the U.S. market:
Deposit the dollars at the U.S. deposit rate (8%) for one year.
$1,132,075.48×(1+0.08)=$1,222,641.52
Total Dollar Cash Flow (Money Market Hedge): $1,222,641.52
