P&G India. Procter and Gamble’s affiliate in India, P&G India, procures much of its toiletries product line from a Vietnamese company. Because of the shortage of working capital in India, payment terms by Indian importers are typically 180 days or longer. P&G India wishes to hedge a 10 million Vietnamese dong (d-) payable.

Although options are not available on the Indian rupee ( ), forward rates are available against the dong.

Additionally, a common practice in India is for companies like P&G India to work with a currency agent who will, in this case, lock in the current spot exchange rate in exchange for a 3.85% fee. Using the following exchange rate and interest rate data, recommend a hedging strategy.

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Spot rate: 346.49d/ 180-day forward rate 318.49/ Expected spot, 180 days 318.49d/ 180-day rupee investing rate 6.00% 180-day dong investing rate 1.80% Currency agent's exchange rate 3.85% P&G India's cost of capital 10.00%