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"Assume the following information: Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$600,000 in 1 year. You are a consultant for this firm. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge

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mirianmoses

Answer and Explanation:

Borrow in New Zealand dollars  

600000/1.1 = 545454.5 NZ$  

Convert the New Zealand dollars to  

USD      

545454.5 0.39 = 212727.3 USD  

Invest the USD to get    

USD               US deposit rate    

212727.3                   1.11 = 236127.3  

236127.3 is the value of the exports after 1 year.  

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