Samson Inc. needs €1,000,000 in 30 days. Samson can earn 5 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrow funds in the U.S. at an annualized interest rate of 6 percent. If Samson uses a money market hedge, how much should it borrow in the U.S.?

Question

Quizplus · Accepted Answer

To calculate the amount to borrow in the U.S. using a money market hedge, we need to follow these steps:

1. Calculate the euros needed in 30 days with interest: 
€1,000,000 * (1 + 0.05/365)^30 = €1,001,644.93

2. Convert the euros to dollars: 
€1,001,644.93 * $1.00/€1.00 = $1,001,644.93

3. Calculate the dollars needed in 30 days with interest: 
$1,001,644.93 * (1 + 0.06/365)^30 = $1,005,493.18

4. Borrow the calculated amount in dollars: 
$1,005,493.18

Therefore, the answer is B) $995,851.