The correct answer is option B : $240,000. Using a money market hedge, the approximate value of the U.S. exporter's NZ$600,000 in one year in U.S. dollars is $240,000, after accounting for the present value using New Zealand's deposit rate and converting using the spot rate.
To calculate the approximate value of exports in U.S. dollars using a money market hedge, we first determine the present value of NZ$600,000 in U.S. dollars using New Zealand's deposit rate. The exporter can deposit a sum of money into a New Zealand account that will grow to NZ$600,000 in one year. To find this sum, we use the formula :
Present Value = Future Value / (1 + r), where r is the deposit rate.
Using the New Zealand deposit rate of 8% (0.08), we get:
Present Value = NZ$600,000 / (1 + 0.08) = NZ$555,555.56.
Next, knowing the spot rate is $.39, we convert the present value in New Zealand dollars to U.S. dollars :
Present Value in USD = NZ$555,555.56 * $.39 = $216,666.67.
Then, the U.S. firm should invest $216,666.67 at the U.S. deposit rate to hedge the amount.
After one year at the U.S. deposit rate of 11% (0.11), the investment will be worth :
Future Value = Present Value * (1 + r) = $216,666.67 * (1 + 0.11) = $240,600.00.
However, due to the New Zealand dollar's forward rate for one year being $.40, the actual future value in U.S. dollars is :
Future Value = NZ$600,000 * $.40 = $240,000.
Therefore, the approximate value of these exports in one year in U.S. dollars, after executing a money market hedge, is $240,000.