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On March 1,1998,Bechtel Submits a Franc-Denominated Bid on a Project

question 10

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On March 1,1998,Bechtel submits a franc-denominated bid on a project in France.Bechtel will not learn until June 1 whether it has won the contract.What is the most appropriate way for Bechtel to manage the exchange risk on this contract?


Definitions:

Nominal Interest Rate

The nominal interest rate represents the rate of interest before adjustments for inflation, indicating the percentage increase in money lenders earn or borrowers pay over a specific period.

Real Interest Rate

The interest rate that has been modified to account for inflation, indicating the actual cost of borrowing or the true earnings from savings.

Inflation Rate

This is the percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Nominal Interest Rate

The percentage increase in money that borrowers pay lenders, not adjusted for inflation.

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