- Intro Taquito Is A U S Fast Food Chain Which Imports Supplies From Mexico The Company Will Need 1 000 000 Mexican Peso 1 (129.76 KiB) Viewed 47 times
Intro Taquito is a U.S. fast food chain which imports supplies from Mexico. The company will need 1,000,000 Mexican pesos (MXN) in one year to pay its suppliers. The spot rate is $0.0455 per peso and the one-year forward rate is $0.046 per peso. Assume that the forward rate is the best predictor of the future spot rate. The U.S. interest rate is 4% and the Mexican interest rate is 11%. A call option on pesos expiring in one year costs $0.0048 per peso. Its exercise price is $0.046 per peso. Part 1 "Attempt 2/3 for 10 pts. What is the expected cost of obtaining $1,000,000 pesos in one year if the company does not hedge its payables (in $)? 45900 Correct Expected cost in $: = Payables * Expected spot rate = MXN1,000,000 - $0.046/MXN = $46,000 Part 2 Attempt 2/3 for 10 pts. What is the total cost if Taquito uses a foward contract to buy pesos (in $)? 51400 Correct Cost in $: = Payables * Forward rate = MXN1,000,000 - $0.046 / MXN = $46,000 Since the forward rate is equal to the expected future spot rate, the cash flow is the same as the expected cash flow without hedging.
Part 3 Attempt 2/3 for 10 pts. What is the total cost of creating a money market hedge, including interest (in $)? 0+ decima Submit Part 4 Attempt 1/3 for 10 pts. What is the total cost of hedging your payables with a call option (in $)? 0+ decima