ABC Ghana Ltd sold goods to XYZ Ltd, a U.S company and billed $30 million payable in six months. ABC Ghana Ltd is concerned about the Cedi proceeds from international sales and would like to control exchange rate risk. The current spot exchange rate is GHS0.95/$ and the six-month forward exchange rate is GHS0.91/$. ABC Ghana Ltd can buy a six-month put option on U.S dollars with a strike price of GHS0.95/$ for a premium of GHS0.002 per U.S dollar. Currently, six-month interest rate is 2.5 percent in Ghana and 3.0 percent in the United States.

1. Describe how ABC Ltd can use forward contract to manage this exposure. Compute the guaranteed GHS proceeds from the American sale if ABC decides to hedge using a forward contract. 10 marks
2. Suppose the spot rate at maturity is GHS0.67/S. Will ABC Ghana Ltd be better or worse off under the forward hedge" 6 marks
3. If ABC Ghana Ltd decides to hedge using put options on U.S dollars, what would be the 'expected' GHS proceeds from the American sale? 7 marks
4. Suppose the spot rate at maturity is GH0.67/S. Will ABC Ghana Ltd be better or worse off under the option hedge? 7 marks
5. Outline by showing the calculation of the steps through which money market can be used ABC Ghana Ltd to hedge its receivable. 10 marks