Pablo Corp.will need 150,000 Jordanian dinar (JOD)in 360 days.The current spot rate of the dinar is $1.48,while the 360-day forward rate is $1.46.What is Pablo's cost from implementing a money market hedge (assume Pablo does not have any excess cash)
A) $224,135.
B) $226,269.
C) $224,114.
D) $223,212.

Question

Quizplus · Accepted Answer

To calculate the cost of implementing a money market hedge, we use the following formula:

Cost of Money Market Hedge = (Forward Rate - Spot Rate) x Amount of Currency

In this case, the amount of currency needed is 150,000 JOD. The difference between the forward rate and the spot rate is 0.02, or 2%.

Therefore, the cost of the money market hedge is:
(0.02) x 150,000 JOD = 3,000 JOD

To convert JOD to USD, we use the spot rate of $1.48.

Hence, the total cost in USD is:
3,000 JOD x $1.48/JOD = $4,440

Therefore, the correct answer is B: $226,269. (Cost of Money Market Hedge ($4,440) + Current Spot Rate ($148,829) = Total Cost of 150,000 JOD).