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# Chinese factory

You work for a US company that imports products from a Chinese factory.The US company received an invoice from the Chinese factory requesting a payment in the amount of CNY 100,000,000 due 90 days from today CNYUSD Spot Rat is  Today’s Spot Rate: Dec. 11, 2018 ActualSpot Rate = USDCNY 6.90566Inverse Spot Rate = CNYUSD 0.1448I CNY = 0.144813 USDCAD 100,000,000 = USD 14,480,000The 90-day Forward Rate is3 Month Forward RateMAR. 11, 2019 ForecastRemember, USD is not the base1 CNY = USD 0.144813Inverse Forecasted Spot Rate = CNYUSD 0.1445CNY 100,000,000 = USD 14,450,000 The implied Chinese 3 month interest rate is Spot Rate x ((1+ implied Chinese interest rate) / (1+ US interest rate)) = Forward RateSpot Rate x (1 + x) / (1+ 0.0235) = Forward Rate                                                                     0.1448 x (1 + x) / (1 + 0.0235) = 0.14450.1448 + 0.1448 x / 1.0235 = 0.14450.1448 + 0.1448 x = 0.1445 * 1.02350.1448 x = 0.1478 – 0.1448X = 0.00309 / 0.1448X = 0.0213397 or 2.13%·     Actual 3-month US Treasury Bill rate = 2.35%·     Implied 3-month Chinese interest rate = 4) To execute a Money Market Hedge, the Present Value of the CNY 100,000,000 payable is  PV of the foreign currency payable is Chinese Treasury Bill 3 Month December 11, 2018: 2.13%In 90 days, CNY 100,000,000 is due and payable·     What is the PV of CNY 100,000,000, at 2.13% rate?·     FV / (1 + Rate) = PV·     100,000,000 / 1.0213 = CNY 97,914,422CNY 97,914,422 today equals this value of USD todayUse Inverse Spot Rate = CNYUSD 0.1448·     CNY 97,914,422 x 0.1448 = USD 14,178,008·     Withdraw USD 14,178,008 from US bank account·     Convert to CNY 97,914,422·     Deposit CNY 97,914,422 into Chinese bank, investing in a 3-month Chinese Treasury Bill paying 2.13%·     Over the next 90 days the CNY 97,914,422 deposit will grow 2.13% to CAD 100,000,000o  97,914,422 x 1.0213 = 99,999,999.2·     Withdraw CNY 99,999,999.2 from the Chinese bank on Mar. 11, 2019·     Pay the Chinese factory the CNY 99,999,999.2 on Mar. 11, 2019 The USD value today of the CNY value is1 USD = 6.90566 CNY1 CNY = 0.144813 USD·     CNY 97,914,422 x 0.1448 = USD 14,178,008Question:-

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