Use the Following Information to Calculate the Dollar Cost of Using

question 6

Multiple Choice

Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 pounds of payables due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $2.02, the 180-day forward rate is $2.00. The British interest rate is 5%, and the U.S. interest rate is 4% over the 180-day period.

• A) $391,210.
• B) $396,190.
• C) $388,210.
• D) $384,761.
• E) none of the above

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Definitions:

Social Facilitation

The tendency for people to perform differently when in the presence of others than when alone, typically showing improved performance on tasks.

Fishing Reel

A device attached to a fishing rod used to wind and stow the fishing line, facilitating casting and retrieval of the lure or bait.

Group Polarization

The tendency for a group to make decisions that are more extreme than the initial inclination of its members, often observed after group discussions.

Prestigious Institution

A highly respected and renowned educational or academic organization known for its excellence and distinguished history.