Use the Following Information to Calculate the Dollar Cost of Using

question 50

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:

Current Liabilities

Short-term financial obligations that are due within one year or within a normal operating cycle.

Ratios

A quantitative relationship between two numbers, showing how many times one value contains or is contained within the other.

Answering Machine

A device that automatically answers telephone calls and records messages from callers.