IRP versus IFE
Response to the following problem:
You believe that interest rate parity and the international Fisher effect hold. Assume that the U.S. interest rate is presently much higher than the New Zealand interest rate. You have receivables of 1 million New Zealand dollars that you will receive in 1 year. You could hedge the receivables with the 1-year forward contract. Or, you could decide to not hedge. Is your expected U.S. dollar amount of the receivables in 1 year from hedging higher, lower, or the same as your expected U.S. dollar amount of the receivables without hedging? Explain