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2 August, 18:40

Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrow funds in the United States at an annualized interest rate of 6 percent. If Samson uses a money market hedge, how much should it borrow in the United States?

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  1. 2 August, 19:04
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    If Samson uses a money market hedge, it should borrow $952,381 in the United States.

    Explanation:

    Amount required in 30 days = Euro 1,000,000

    Required to be deposited in Euro = Present value

    = 1,000,000 / (1.05)

    = Euro 952,380.95

    Required borrowings in Dollars = Amount required in Euro*Spot rate

    = 952,381*1

    = $952,381
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Home » Business » Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrow funds in the United States at an annualized interest rate of 6 percent.
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