Long-Term Forward Contracts Assume that interest rate parity exists. The annualized interest rate is presently 5 percent in the United States for any term to maturity and is 13 percent in Mexico for any term to maturity. Dokar Co. (a U.S. firm) has an agreement under which it will develop and export soft ware to Mexico’s government two years from now and will receive 20 million Mexican pesos in two years. The spot rate of the peso is $\$ 0.10 .$ Dokar uses a two-year forward contract to hedge its receivables in two years. How many dollars will Dokar Co. receive in two years? Show your work.

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 51QA
Textbook Problem

Long-Term Forward Contracts Assume that interest rate parity exists. The annualized interest rate is presently 5 percent in the United States for any term to maturity and is 13 percent in Mexico for any term to maturity. Dokar Co. (a U.S. firm) has an agreement under which it will develop and export soft ware to Mexico’s government two years from now and will receive 20 million Mexican pesos in two years. The spot rate of the peso is $\$ 0.10 .$ Dokar uses a two-year forward contract to hedge its receivables in two years. How many dollars will Dokar Co. receive in two years? Show your work.

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