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FinanceInternational Financial ManagementLong-Term Hedging with Forward Contracts Tampa Co. will build airplanes and export them to Mexico for delivery in three years. The total payment to be received in three years for these exports is 900 million pesos. Today the peso’s spot rate is $0.10 The annual U.S. interest rate is 4 percent, regardless of the debt maturity. The annual interest rate in Mexico is 9 percent regardless of the debt maturity. Tampa plans to hedge its exposure with a forward contract that it will arrange today. Assume that interest rate parity exists. Determine the dollar amount that Tampa will receive in three years.FindFind*launch*

14th Edition

Madura

Publisher: Cengage

ISBN: 9780357130698

Chapter 11, Problem 42QA

Textbook Problem

Long-Term Hedging with Forward Contracts Tampa Co. will build airplanes and export them to Mexico for delivery in three years. The total payment to be received in three years for these exports is 900 million pesos. Today the peso’s spot rate is $0.10 The annual U.S. interest rate is 4 percent, regardless of the debt maturity. The annual interest rate in Mexico is 9 percent regardless of the debt maturity. Tampa plans to hedge its exposure with a forward contract that it will arrange today. Assume that interest rate parity exists. Determine the dollar amount that Tampa will receive in three years.

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