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-Dominant- [34]
2 years ago
11

Use the following information to calculate the dollar cost of using a money market hedge to hedge 200,000 British pounds of paya

bles due in 180 days. Assume the firm has no excess cash. Assume the spot rate of the pound is $2.02, and the 180-day forward rate is $2.00. The British interest rate is 5 percent, and the U.S. interest rate is 4 percent over the 180-day period.
Business
1 answer:
levacccp [35]2 years ago
5 0

Answer:

The dollar cost of using a money market hedge to hedge 200,000 British pounds of payable due in 180 days is <u>$400,152.38</u>.

Explanation:

A money market hedge refers to a method that employed to to preserve the value of a foreign currency transaction in the domestic currency of a company in order to reduce the exchange rate or currency risk that is associated with business transactions with a foreign company.

For this question, the dollar cost of using a money market hedge can be calculated as follows:

Amount needed to invest in British pounds = Amount needed to hedge / (1 + British interest rate) = £200,000 / (1 + 0.05) = £190,476.19

Since this is in British pounds, we have to convert to the US dollars to obtain the amount of the US dollars that is needed to exchange as follows:

Amount needed to invest in the US dollars = Amount needed to invest in British pounds * Spot rate of the pound = £190,476.19 * $2.02 = $384,761.90

We can now calculate the amount needed to repay loan after 180-day as follow:

Amount needed to repay loan after 180-day = Amount needed to invest in the US dollars * (1 + U.S. interest rate) = $384,761.90 * (1 + 0.04) = $400,152.38

Therefore, the dollar cost of using a money market hedge to hedge 200,000 British pounds of payable due in 180 days is <u>$400,152.38</u>.

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3 years ago
If the supply of aisle seats equals the supply of middle seats on an airplane, and the demand for aisle seats is _____________ t
GuDViN [60]

Answer:

greater; higher than

Explanation:

Here is the complete question

If the supply of aisle seats equals the supply of middle seats on an airplane, and the demand for aisle seats is _____________ than the demand for middle seats, then the equilibrium price of aisle seats will be ______________ the equilibrium price of middle seats

.a. greater; higher than

b. less; higher than

c. greater; lower than

d. less; the same as

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3 years ago
The demand and supply functions for basic cable TV in the local market are given as: Calculate the consumer and producer surplus
lana [24]

Answer: Hello your question is poorly written attached below is the complete question

answer:

a) Cs = 800,000 ,  Ps = 1,500,000

b) Cs = 1437500,  Ps = 525,000

Explanation:

Demand function ( Qd ) = 200,000 - 4000 P

supply function ( Qs ) = 20,000 + 2000 P

at equilibrium :  200,000 - 4000P = 20,000 + 2000P

therefore ; P = 180,000 / 6000 = 30

Q = 20,000 + 2000 ( 30 ) = 80,000

<u>a) Determine consumer and producer surplus in the market</u>

consumer surplus ( Cs ) This is the area above the price and below the demand curve  = 1/2 * ( 50 - 30 ) 80,000 = 800,000

producer surplus ( Ps ) This is the area above supply and below price

= 30 * ( 80,000 ) -  1/2 (80,000 - 20,000 ) (30)

= 1,500,000

<u>b) Determine the new levels of consumer and producer surplus with a price ceiling of $15 </u>

Pc (ceiling price ) = $15

Qd = 200,000 - 4000 ( 15 )  = 140,000

Qs = 20,000 + 2000 ( 15 ) = 50,000

∴ New consumer surplus = area ( a , Pc, b, d )

= ( 30 - 15 ) (50,000) + 1/2(50-30) (80,000) - 1/2 (80,000 - 50,000 ) (37.5 - 30)

   = 1437500

New producer surplus = area ( Pc , b, e 0 )

= ( 15 ) ( 50000) - 1/2 ( 50,000 - 20,000 ) (15)

= 525,000

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