Pile-of-Bones Inc.,headquartered in Regina,just bought snowblowers for US $100,000 to be paid in 90 days.As the financial manager,you are responsible for making a recommendation on the best hedging choice available to Pile-of-Bones Inc.You check with your banker and find out the following: The current spot rate is C$1.35/US$ and the 90-day forward rate is C$1.36/US$.The interest rates are 5% in the United States and 6% in Canada.
a)What are the net payables if Pile-of-Bones uses a forward hedge?
b)What are the net payables if Pile-of-Bones uses a money market hedge?
c)Which type of hedge should Pile-of-Bones use?

Question

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The Answer of Pile-of-Bones Inc.,headquartered in Regina,just bought snowblowers for US $100,000 to be paid in 90 days.As the financial manager,you are responsible for making a recommendation on the best hedging choice available to Pile-of-Bones Inc.You check with your banker and find out the following: The current spot rate is C$1.35/US$ and the 90-day forward rate is C$1.36/US$.The interest rates are 5% in the United States and 6% in Canada.
a)What are the net payables if Pile-of-Bones uses a forward hedge?
b)What are the net payables if Pile-of-Bones uses a money market hedge?
c)Which type of hedge should Pile-of-Bones use?

Pile-Of-Bones Inc