help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Canada Export Inc

Canada Export Inc

Finance

Canada Export Inc. (CEI) is a Canadian MNC that needs to pay €240,000 in one year to a German supplier. The current spot rate is CAD$ 1.50 per €. The interest rate in Canada is 3 percent and the interest rate in Germany is 4 percent. CEI decides to use a money market hedge to mitigate all of exchange rate risk. What is the €240,000 payables worth in CAD$?

  A.

CAD$ 158,462.
  B.

CAD$ 161,553.
  C.

CAD$ 356,538.
  D.

CAD$ 363,495.
  E.

CAD$ 360,000.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

The payment is hedged as follows :

  • An amount equal to the present value of the € payable amount, discounted at the € interest rate, is required to be deposited today. € to deposit today =  €240,000 / (1 + 4%) =  €230,769.23
  • An amount equal to the $ equivalent of €230,769.23 is borrowed today. The exchange rate applied here will be the spot exchange rate. $ borrowed today =  €230,769.23 * 1.50 = $346,153.85
  • $ to repay after 1 year =  $346,153.85 * (1 + 3%) = $356,538.46
  • $ payable amount (rounded off) =  $356,538

The answer is C

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)