Calculate the exchange rates that will apply if the money market hedges are used for the exports to Canada (Complete Table 6 on the separate answer sheet)
|Currencies||Spot||3 month (90 days)||6 month (180 days)||9 month (270 days)||12 month (360 days)|
Bank applies 360 day-count convention to all currencies (for this assignment apply 360 days in all calculations).
Annual borrowing and investment rates for your company:
|Country||3 month rates||6 months rates||9 month rates||12 month rates|
Bank applies 360 day-count convention to all currencies. Explanation – e.g. 3 month borrowing rate on $ = 2.687%. This is the annual borrowing rate for 3 months. If you only borrow for 3 months the interest rate is actually 2.687%/4 = 0.67175% (always round to 5 decimals when you do calculations). Furthermore, note that these are the rates at which your company borrows and invests. The rates are not borrowing and investment rates from a bank perspective.
Table 6: Canada export with money market hedge: (8 marks)
|PV of foreign currency to be borrowed||Converted at spot to $ for investment||$ amount with interest invested||Exchange rate locked in with transaction|
|Show your workings and answers in the columns|
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