1. Assume the following information:

• 90day U.S. interest rate = 1.5%
• 90-day Philippine interest rate = 3%
• 90-day forward rate of Philippine peso = $0.020
• Spot rate of Philippine peso = $0.025

Assume your firm in the United States will need 300,000,000 Philippine pesos in 90 days. It wishes to hedge this payables position.

Would it be better off using a forward hedge or a money market hedge? Provide the mathematical analysis to justify your position.