Question
Assume the following information: 90-day U.S. interest rate 3% 90-day Malaysian interest rate 4% 90-day forward rate of Malaysian ringgit $0.386 Spot rate of Malaysian
Assume the following information:
90-day U.S. interest rate | 3% | |
90-day Malaysian interest rate | 4% | |
90-day forward rate of Malaysian ringgit | $0.386 | |
Spot rate of Malaysian ringgit | $0.388 |
Assume that the Santa Barbara Co. in the United States will need 200,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge. Do not round intermediate calculations. Round your answers to the nearest dollar.
The firm will pay out $ BLANK in 90 days if it uses the forward hedge and $ BLANK if it uses the money market hedge. Thus, it should use the (forward OR money market) hedge.
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