Perkins Corp. will receive 250,000 Jordanian dinar (JOD) in 360 days. The current spot rate of the dinar is $1.48, while the 360-day forward rate is $1.50. How much will Perkins receive in 360 days from implementing a money market hedge (assume any receipts before the date of the receivable are invested)?
a. $372,500
b. $375,000
c. $370,000
d. $365,000
To calculate the amount that Perkins Corp. will receive in 360 days from implementing a money market hedge, we need to consider the spot rate and the 360-day forward rate.
At the current spot rate of $1.48/JOD, the amount in USD that Perkins will receive is:
250,000 JOD * $1.48/JOD = $370,000
However, by implementing a money market hedge, Perkins can use the 360-day forward rate of $1.50/JOD. This means that the amount in USD that Perkins will receive is:
250,000 JOD * $1.50/JOD = $375,000
Therefore, the correct answer is b. $375,000.
To calculate the amount Perkins Corp. will receive in 360 days from implementing a money market hedge, we need to consider the different exchange rates and the time value of money.
Step 1: Calculate the amount Perkins Corp. will receive in JOD using the spot rate:
Amount in JOD = 250,000 JOD
Step 2: Calculate the amount in USD using the spot rate:
Amount in USD = Amount in JOD * Spot rate
Amount in USD = 250,000 JOD * $1.48
Amount in USD = $370,000
Step 3: Calculate the amount in USD using the forward rate:
Amount in USD = Amount in JOD * Forward rate
Amount in USD = 250,000 JOD * $1.50
Amount in USD = $375,000
Step 4: Compare the results from step 2 and step 3 to determine the amount Perkins Corp. will receive in 360 days from implementing a money market hedge.
The correct answer is (b) $375,000.