A company (Sule Ltd) operating in a country having the dollar as its unit of currency has today invoiced sales to the United Kingdom in sterling (), payment being due three months from the date of invoice. The invoice amount is 6,000,000 which, at todays spot rate of 1.5985 is equivalent to $9,591,000.

It is expected that the exchange rate will decline by about 5% over the three-month period and in order to protect the dollar proceeds from the sale, the company proposes taking appropriate action through either the foreign exchange market or the money market.

The $/ three-months forward exchange rate is quoted as 1.5858 1.5873. The three-months borrowing rate for Eurosterling is 15.0% and the deposit rate quoted by the companys own bankers is currently 9.5%.

Required:

(a) Explain the alternative courses of action available to the company, with relevant calculations to four decimal places, and to advise which course of action should be adopted.