Mengstrom Dunbar plc is a medium sized Glasgow company that trades with

companies in several European countries. Trade deals over the next three months are

shown below. Assume that it is now 20 April.

Two Months Three Months

Receipts Payments Receipts Payments

Spain 200,000 500,000 600,000 70,000

Italy 300,000 400,000 890,300 2,370,000

Denmark Kr250,000 Kr250,000 Kr9.m

Foreign exchange rates:

Dkroner/ Euro ()/

Spot 10.68-10.71 1.439-1.465

Two months forward 10.74-10.77 1.433-1.459

Three months forward 10.78-10.83 1.431-1.456

Annual interest rates (valid for 2 months or 3 months)

Borrowing(%) Investing (%)

United Kingdom 7.50 5.50

France 5.75 3.50

Germany 5.75 3.50

Denmark 8.00 6.00

REQUIRED:

Using the forward market and money market, devise a foreign exchange hedging strategy

that is expected to maximise the cash flows of Mengstrom Dunbar plc at the end of the

three month period.