International Homework

International Homework - JessicaSummers March31,2010

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Jessica Summers March 31, 2010 Problem 13- Scout Finch and Dayton (A) Assumptions Value 90 day A/R in Pounds 3,000,000 Spot Rate, Dollars per Pound 1.76 90 day forward rate, Dollars per Pound 1.76 3 month US investment rate 6% 3 month US borrowing rate 8% 3 month UK investment rate 8% 3 month UK borrowing rate 14% Put options on Pound 1.75 1.71 Put option premium 1.50% 1% Dayton's WACC 12% Scout Finch's expected spot rate in 90 days, Dollars per Pound 2% 1st Alternative: Remain Uncovered Rate ($/Pound) Proceeds 3,000,000 x rate Current Spot Rate 1.76 5286000 Forward Rate 1.76 5265000 Expected Spot Rate 1.79 5355000 2nd Alternative: Forward Contract Hedge Sell the Pounds forward 3 months and lock in the forward rate Forward Rate 1.76 5265000 3rd Alternative: Money Market Hedge Receive Pounds upfront then exchange to Dollars A/R in Pounds 3,000,000 Discount Rate 0.97 Proceeds of borrowing upfront
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International Homework - JessicaSummers March31,2010

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