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Kis a manufacturing company. It has sourced new equipment from the US to equip a new production facility.
It has to make a payment of USD1,000,000 in3 months' time.
K's production manager needs to know whether it is cheaper to use a forward contract or a money market hedge.
Current spot and forward exchange rates are as follows:
Current mid-point money market rates (annual) are as follows:
Ignoring taxation, which of the following statements is correct?
Suggested Answer: A, B, D
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38 comments · newest first
AR
Arlette
12 months ago
I heard the money market hedge is usually more cost-effective.
ZO
Zona
12 months ago
Definitely leaning towards the forward contract saving GBP2,629.
IN
Inocencia
1 year ago
Wait, how can the money market hedge save that much? Sounds off.
RI
Rickie
1 year ago
I think the forward contract is the better option here.
MA
Maybelle
1 year ago
The money market hedge saves GBP15,196.
CR
Crista
1 year ago
I vaguely remember that the money market hedge could save a significant amount, maybe around GBP15,000, but I’m not confident about the exact figure.
HY
Hyun
1 year ago
I feel like the forward contract might save more, but I need to double-check the calculations we practiced last week.
NA
Natalya
1 year ago
I think we did a similar practice question where the money market hedge was cheaper, but I can't recall the specific numbers we used.
SU
Suzan
1 year ago
I remember we discussed forward contracts and money market hedges in class, but I'm not sure how to calculate the exact savings for each option.
MA
Mari
1 year ago
This is a good test of my string processing skills. I'm confident I can figure out the right approach here.
GL
Glenna
1 year ago
Hmm, I'm a bit unsure about this one. I know we can use the Business Manager to import/export site data, but I'm not sure if that's the right approach here. I'll have to think it through carefully.
CH
Chantell
1 year ago
I'll break this down step by step - first calculate EMI, then split interest and principal, and track interest paid in that specific financial year.
CL
Clay
1 year ago
I'm leaning towards Option B since it mentions both logging and emailing the admin, but I'm not 100% sure about the Compensating Service Transaction pattern.
LE
Lettie
1 year ago
Wait, are we supposed to use the spot rate or the forward rate? I'm so confused, I might just hedge my bets and go with option C.
LE
Leonardo
1 year ago
Sounds good, let's hedge our bets with the forward contract.
GW
Gwenn
1 year ago
I agree, let's go with option B then.
CL
Clemencia
1 year ago
I think we should use the forward rate for the calculation.
SH
Sharee
2 years ago
The forward contract saves GBP1,901? That's pocket change! I hope the other options are more substantial.
LO
Lorrine
1 year ago
User 4: Yeah, that seems like a small amount compared to the money market hedge.
VI
Viki
1 year ago
User 3: The forward contract saves GBP1,901
RE
Rebeca
1 year ago
User 2: That's a significant amount of savings!
TA
Tamra
1 year ago
User 1: The money market hedge saves GBP15,196
DA
Dacia
1 year ago
User 4: Yeah, that seems like a small amount compared to the money market hedge.
CO
Coletta
1 year ago
User 3: The forward contract saves GBP1,901
AR
Arlette
1 year ago
User 2: That's a significant amount of savings!
RE
Reena
1 year ago
User 1: The money market hedge saves GBP15,196
BA
Barrett
2 years ago
GBP32,078 saved with the money market hedge? That's a pretty hefty amount. I wonder if there's a catch.
CR
Crista
1 year ago
I agree, it's important to weigh the pros and cons of each option carefully.
JE
Jess
1 year ago
True, we should consider all factors before making a decision.
DE
Denae
1 year ago
Yeah, but we should also consider any potential risks involved.
SO
Socorro
1 year ago
But what if there are hidden costs or risks involved with the money market hedge?
JO
Joanna
1 year ago
It does seem like a significant saving with the money market hedge.
IN
Ines
1 year ago
I think the money market hedge is the way to go. GBP32,078 in savings is hard to ignore.
CA
Cammy
2 years ago
Forward contract saves GBP2,629? Hmm, that seems too low. I better review the exchange rates again.
RE
Rebecka
2 years ago
The money market hedge saves GBP15,196? I'm not convinced. Let's double-check the calculations.
BO
Boris
2 years ago
I'm not sure, but I think the money market hedge saves GBP32,078.
GI
Gilma
2 years ago
I disagree, I believe the forward contract saves GBP2,629.
SA
Sanda
2 years ago
I think the money market hedge saves GBP15,196.