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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Zike Athletic Shoe Company sells to a wholesaler in Freedonia. The purchase price of a shipment is 50,000 Freedonian marks with terms of 90 days. Upon payment Zike will convert the marks to dollars. The present spot rate for marks per dollar is 1.71, whereas the 90-day forward rate is 1.70.
a. If Zike were to hedge its exchange-rate risk, what would it do? What transactions are necessary?
b. Is the mark at a forward premium or at a forward discount?
c. What is the implied differential in interest rates between the two countries? (Use interest-rate parity assumptions.)
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