New York Co. has agreed to pay 2 million Turkish pounds (TRY) over 6 years for equipment it imports from Turkey. The SPOT exchange rate for the Turkish lira (TRY) is 0.246720 USD/TRY. The annualized American (USD) interest rate is 13.4%, regardless of the maturity of the debt. The annualized Turkish lira (TRY) interest rate is 9.21% regardless of debt maturity. New York Co. plans to hedge its exposure with a forward contract (FWD) to be finalized today. Assume interest rate parity (IRP). Determine the amount of U.S. dollars (USD) to be used by the company in 6 years to make its payment. The alternatives are a. Premium of 25.344097%, FWD exchange rate 0.309248955 USD/TRY and $618,497.91 dollars to be required. b. Premium of 25.344097%, FWD exchange rate 0.309248955 TRY/USD and $618,497.91 dollars to be required. c. Discount of 20.219617%, FWD exchange rate 0.19683416 TRY/USD and $393,668.32 dollars to be needed. d. Discount of 20.219617%, FWD exchange rate 0.19683416 USD/TRY and $393,668.32 to be needed.
New York Co. has agreed to pay 2 million Turkish pounds (TRY) over 6 years for equipment it imports from Turkey. The SPOT exchange rate for the Turkish lira (TRY) is 0.246720 USD/TRY. The annualized American (USD) interest rate is 13.4%, regardless of the maturity of the debt. The annualized Turkish lira (TRY) interest rate is 9.21% regardless of debt maturity. New York Co. plans to hedge its exposure with a forward contract (FWD) to be finalized today. Assume interest rate parity (IRP). Determine the amount of U.S. dollars (USD) to be used by the company in 6 years to make its payment.
The alternatives are
a. Premium of 25.344097%, FWD exchange rate 0.309248955 USD/TRY and $618,497.91 dollars to be required.
b. Premium of 25.344097%, FWD exchange rate 0.309248955 TRY/USD and $618,497.91 dollars to be required.
c. Discount of 20.219617%, FWD exchange rate 0.19683416 TRY/USD and $393,668.32 dollars to be needed.
d. Discount of 20.219617%, FWD exchange rate 0.19683416 USD/TRY and $393,668.32 to be needed.
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