Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company priced in American dollars at the spot rate on a three month
Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company priced in American dollars at the spot rate on a three month credit period. Kiambu County Government has all its money tied up in its operations but it could borrow in Kenya if necessary. Given: Interest rates (Quarterly) USA Kenya Exchange rates 4% 2.5% Spot: $1/Kshs.76.22-76.92 3 month forward $1/Kshs.64.23-64.93 There is a three month dollar call option at a premium of $25,000 at an exercise price of Kshs.66.53. Required: Using suitable computations, illustrate three strategies available to Kiambu County Government in managing this exposure and advice on the suitable techniques.
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