Suppose PepsiCo Hedges a ¥1 Billion Dividend It Expects to Receive

question 11

Multiple Choice

Suppose PepsiCo hedges a ¥1 billion dividend it expects to receive from its Japanese subsidiary in 90 days with a forward contract. The current spot rate is ¥150/$1 and the 90?day forward rate is ¥149/$If the spot rate in 90 days is ¥154/$, how much has this forward market hedge cost PepsiCo?

• A) $173,160
• B) $44,743
• C) Pepsi gains $173,160 from the forward contract
• D) Pepsi gains $217,903 from the forward contract

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