You would like to use money market hedge to hedge your £21M A/R next year.Current spot rate is 1.7$/£,home (U.S.)risk-free interest rate is 10% and U.K.risk-free interest rate is 5%,What is your next year dollar equivalent of these A/R if you have $25M debt at 12%:

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Borrow £20M loan with one year duration at 5% in UK and pay back the same with accounts receivable £21M which includes interest.Convert the pounds to US dollars i.e. £20M at spot rate for 1.7$/£ = US$34M.Add interest = 34,000,000 * 10%; =3.4M US dollarsTotal A/R = 37.4Million US dollars

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