The Australian Dollar (A$) 6-month borrowing rate is 7.50% per annum andthe Australian Dollar (A$) 6-month investment rate is 4.50% per annum. TheEuro (€) 6-month borrowing rate is 5.40% per annum and the Euro (€) 6 -month investment rate is 2.18% per annum. An Australian company isexpecting to use money market hedging both for its account payables andaccount receivables. The current spot rate is A$1.72/€. WACC =7%Determine the cost for money market hedging for a cash flow of €6.9 milliondue to a supplier in 6 months, and the proceed for money market hedgingfor a cash flow of €9.9 million due from a customer in 6 months.

Money Market Hedging:A money market hedge is a technique used to lock in the value of a foreign…

Determine the cost for money market hedging for a cash flow of €6.9 million due to a supplier in 6 months, and the proceed for money market hedging for a cash flow of €9.9 million due from a customer in 6 months.

Determine the cost for money market hedging for a cash flow of €6.9 million due to a supplier in 6 months, and the proceed for money market hedging for a cash flow of €9.9 million due from a customer in 6 months.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 4ST

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Concept explainers

Cash Flow Statement Analysis

A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business during the fiscal year. The cash flow analysis is a method of analyzing an organization's investing, financing, and operating activities. A cash flow statement reveals an organization's liquidity and solvency, as well as its ability to change cash flows in the future. It eliminates the other effects of accounting methods by improving the comparability of different organizations' operational performance.

Question

The Australian Dollar (A$) 6-month borrowing rate is 7.50% per annum and
the Australian Dollar (A$) 6-month investment rate is 4.50% per annum. The
Euro (€) 6-month borrowing rate is 5.40% per annum and the Euro (€) 6 -
month investment rate is 2.18% per annum. An Australian company is
expecting to use money market hedging both for its account payables and
account receivables. The current spot rate is A$1.72/€. WACC =
7%
Determine the cost for money market hedging for a cash flow of €6.9 million
due to a supplier in 6 months, and the proceed for money market hedging
for a cash flow of €9.9 million due from a customer in 6 months.

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