Question 24
Please use this information to answer the question below:
A US firm's expected Accounts
Payable in Canada due in 1 year
CAD 20,000,000
Current Spot Rate (SR) for CAN
USD 0.65
Annual interest rate in US (Rh)
5%
Annual interest rate in Canada (Rf)
3%
If the 1-year Forward rate for CAN is $0.67, then based on all information given above, the firm should:
use a money market hedge
use a forward hedge