Question
(a)ThebelowisinformationaboutU.SandMalaysianinterestandcurrencyexchangerates.90 day U.S. interest rate =4% 90 day Malaysian interest rate3% 90dayforwardrateofMalaysianringgit=$,400SpotrateofMalaysianringgit=$.404 AssumethattheSantaBarbaraCo.intheUnitedStateswillneed300,000ringgitin90days.Itwishes to hedge this payablesposition. Adviseifitwouldbebetteroffusingaforwardhedgeoramoneymarkethedge?Substantiateyouranswerwithestimatedcostsforeachtypeofhedge.
(a)ThebelowisinformationaboutU.SandMalaysianinterestandcurrencyexchangerates.90 day U.S. interest rate =4%
90 day Malaysian interest rate3%
90dayforwardrateofMalaysianringgit=$,400SpotrateofMalaysianringgit=$.404
AssumethattheSantaBarbaraCo.intheUnitedStateswillneed300,000ringgitin90days.Itwishes to hedge this payablesposition.
Adviseifitwouldbebetteroffusingaforwardhedgeoramoneymarkethedge?Substantiateyouranswerwithestimatedcostsforeachtypeofhedge.
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Analysis for Financial Management
Authors: Robert C. Higgins
10th edition
007803468X, 978-0078034688
