Montclair Co., a U.S. firm, plans to use a money market hedge to hedge its payment of 3 million Australian dollars for Australian goods in one year. The U.S. interest rate is 7 percent, whereas the Australian interest rate is 12 percent. The spot rate of the Australian dollar is $0.85, and the one-year forward rate is $0.81. Determine the amount of U.S. dollars needed in one year if Montclair uses a money market hedge.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 11, Problem 1ST
Textbook Problem

Montclair Co., a U.S. firm, plans to use a money market hedge to hedge its payment of 3 million Australian dollars for Australian goods in one year. The U.S. interest rate is 7 percent, whereas the Australian interest rate is 12 percent. The spot rate of the Australian dollar is $0.85, and the one-year forward rate is $0.81. Determine the amount of U.S. dollars needed in one year if Montclair uses a money market hedge.

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