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MC Question 4

A company whose home currency is the dollar ($) expects to receive 500,000 pesos in six months’ time from a customer in a foreign country. The following interest rates and exchange rates are available to the company:
Spot rate 15·00 peso per $
Six-month forward rate 15·30 peso per $
Home country Foreign country
Borrowing interest rate 4% per year 8% per year
Deposit interest rate 3% per year 6% per year

Working to the nearest $100, what is the six-month dollar value of the expected receipt using a money-market hedge?

A. $32,500
B. $33,700
C. $31,800
D. $31,900

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