Question
A UK resident company is to receive sales proceeds from the USA in amount of USD 620.000 in six months. The finance manager has collected
A UK resident company is to receive sales proceeds from the USA in amount of USD 620.000 in six months. The finance manager has collected the following information: Spot rate ($ per ):1.563 0.002 Six months forward rate ($ per ): 1.567 0.004 Money market rates are the following: One-year sterling interest rate: Borrowing 4.9% Deposit 4.6% One-year dollar interest rate: Borrowing 5.4% Deposit 5.0% Please calculate the expected sterling receipts in six months using a money-market hedge and recommend whether a forward market hedge or a money market hedge should be used.
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