Question

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?​

Answer 1

If Samson uses a money market hedge, it should borrow $952,381 in the United States.

Step-by-step 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