hard · FRM Part 1 Financial Markets and Products
A US company has a $25,000,000 BRL receivable in 120 days. Spot USD/BRL is 0.2000. Forward USD/BRL is 0.1950. US rate is 4.5% and BRL rate is 12.0% (simple interest, 360-day). Calculate the 'Forward Premium/Discount' on the BRL and determine if the Money Market Hedge is a better choice than the Forward Hedge.
- 2.5% flat discount; Forward Hedge is better
- 5.0% annualized discount; Money Market Hedge is better
- 7.5% annualized premium; Money Market Hedge is better
- 7.5% annualized discount; Forward Hedge is better
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