BP plc is an UK company with export and import trade with the US. The following transactions are due within the next three months. Transactions are in the currency specified.

Purchases of components, cash payment due in three months: $100,000.

Sale of finished goods, cash receipt due in three months: $40,000.

Exchange rates (London market)

$/

Spot 1.7106-1.7140

Three months forward 1.7000-1.7080

Six months forward 1.6960-1.6980

Interest rates

Three months or six months Borrowing Lending

Sterling 12% 8%

Dollars 9% 6%

Required

Calculate the net sterling receipts and payments that BP plc might expect for both its

three-month transactions if the company hedges foreign exchange risk on:

(a)The forward foreign exchange market

(b)The money market