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Account payable in turkish Lira (TL)

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Account payable in turkish Lira (TL). Your recent import from turkey has resulted in a three-month account payable in the amount of TL14.5million. You would like to examine a few hedging strategies. The following information is available. Your borrowing and investment rates in each country are at the same rates.

 

Spot rate = TL 1.49/$

Three-month forward rate = TL1.62/$

U.S. interest rate = 3.0 percent per year (or 3.0/4% per 3 months)

Turkish interest rate = 8.4 percent per year (or 8.4/4% per 3 months)

WACC of your company = 12.0 percent per year (or 12.0/4% per 3 months)

Cost of an option on TL at the strike price of Tl 1.54/$ = 2.0 percent

 

Please answer the following question regarding the above case. All answers are in millions.

 

if you were money market rates, the outcome at the end of the period will be (the company uses its WACC to account for time value of money).

 

A) $9.817326

B) none of the answers in this question are correct

C) $8.343081

D) $8.312461