A U.S. firm imports 10 million of goods from a German firm and needs to pay the full amount in 6 months. The following rates are available to the US firm: 6-month US interest rate = 3%; 6-month German interest rate = 5%; and the current spot exchange rate (S$/) = $1.00/. Also, the six-month forward rate is available to the US firm at the forward rate of $1.02/.

a. Describe in detail the money market hedging strategy for the US firm. Be specific.

b. Describe in detail the forward hedging strategy for the US firm. Be specific.