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Chapter 10

5.3 Advantages and disadvantages of MMH

ADVANTAGES DISADVANTAGES

 No currency risk  Complex

 Fairly low transaction costs  May be difficult to get overseas loan

 Offer flexibility  A company with a large overdraft
may struggle to borrow funds now
 May be able to use when forward
contracts not available

5.4 Parity theory

 Interest Rate Parity theory implies that a forward contract and a MMH should
give the same result.

Illustrations and further practice

Now try TYU 2 in Chapter 10

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