IRP versus IFE You believe that interest rate parity and the international Fisher effect hold. Assume that the U.S. interest rate is presently much higher than the New Zealand interest rate. You have receivables of 1 million New Zealand dollars that you will receive in one year. You could hedge the receivables with the one-year forward contract, or you could decide to not hedge. Is your expected U.S. dollar amount of the receivables in one year from hedging higher than, lower than, or the same as your expected U.S. dollar amount of the receivables without hedging? Explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 8, Problem 33QA
Textbook Problem

IRP versus IFE You believe that interest rate parity and the international Fisher effect hold. Assume that the U.S. interest rate is presently much higher than the New Zealand interest rate. You have receivables of 1 million New Zealand dollars that you will receive in one year. You could hedge the receivables with the one-year forward contract, or you could decide to not hedge. Is your expected U.S. dollar amount of the receivables in one year from hedging higher than, lower than, or the same as your expected U.S. dollar amount of the receivables without hedging? Explain.

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