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Question 634351: 1. Nickel Plains of Canada has purchased 500,000 pounds of nickel from Coin Ltd. at US$6.96, payable in 90
days. The current spot rate is 1.3404 ($Can / $U.S.) and the 90-day forward is 1.3421. The vice-president of
finance at Nickel Plains suggests that the spot rate in three months time will be 1.3333.
Interest rates in Canada are currently 2 percent for 90 days and 1.6 percent in the United States.
a. Outline the various options available to Nickel Plains to handle its foreign exchange exposure.
b. Make a recommendation.
SOLUTIONS
Formulas & Data to complete the reqirements of problem step by step
a. Outline the various options available to Nickel Plains to handle its foreign exchange exposure.
Purchase in three month’s time (90 days):
Amount of nickel 500,000
Price $6.96
Total contract FORMULA
1. Take a chance on the spot rate (at the future date):
Spot rate VALUE
Future cost FORMULA
2. Book a forward contract:
Forward rate VALUE
Future cost FORMULA
3. Money market hedge:
i. Invest 90 day discounted $1,475,000 (to meet contract):
US interest rate VALUE
Discounted amount FORMULA
ii. Convert to $ Canadian at the spot rate:
Spot rate VALUE
Canadian FORMULA
iii. Borrow in Canada at the current interest rates:
CDN. interest rate VALUE
Future cost FORMULA
Pay off loan
b. Make a recommendation
Answer by lynnlo(4176)   (Show Source):
You can put this solution on YOUR website! is this a whole page of your homework,you should try to do some of it. yu want a tutor to do your whole sheet,in that way you will not understand what to do when you hve another problem like this
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