Question
Assume the interest rate parity exists and it will continue to exist in the future. The Malaysian and Thai interest rates are the same regardless
Assume the interest rate parity exists and it will continue to exist in the future. The Malaysian and Thai interest rates are the same regardless of the maturity of the interest rate, and they will continue to be the same in the future. SamCon Berhad and WinSon Berhad will each receive 1 million Thai Baht in 1 year and will receive 1 million Thai Baht in 2 years. Today, SamCon Berhad uses a 1-year forward contract to hedge its receivables that will arrive in 1 year. Today, it also uses a 2-year forward contract to hedge its receivables that will arrive in 2 years. WinSon Berhad, uses a 1-year forward contract to hedge the receivables that will arrive in 1 year. A year from today, WinSon Berhad, will use a 1-year forward contract to hedge the receivables that will arrive 2 years from today. The Thai Baht is expected to consistently depreciate substantially over the next 2 years. Will SamCon Berhad receive the more, less, or same amount of MYR as WinSon Berhad? Explain. ( 10 marks)
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