1. Forward versus Money Market Hedge on Payables. Assume the following information:

90day U.S. interest rate = 2% per 90 days or 8% per year compounded quarterly

90day Malaysian interest rate = 2.5% per 90 days or 10% per year compounded quarterly

Assume borrowing and lending rates are the same for simplicity.

90day forward rate of Malaysian ringgit = $0.31

Spot rate of Malaysian ringgit = $0.30

Assume that the Santa Barbara Co. in the United States will need 500,000 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.