PART B

As KR is new to international trade, Mr$.$ Azman is concerned with the potential impact of

exchange rate fluctuations on KR$$s financial performance. En$.$ Azman is not familiar with

various techniques available to hedge transaction exposure. He has asked you to help him

identify issues in international trade and identify hedging techniques most appropriate for KR$.$

En$.$ Azman has managed to gather the following information.

Current spot rate RM$5\mathrm{.}8293/$

$90-$day forward rate RM$5\mathrm{.}7902/$

Put option premium $(31,250$ per option$)$ RM$0\mathrm{.}09$ per unit

Put option exercise price RM$5\mathrm{.}7127$

Call option premium $(31,250$ per option$)$ RM$0\mathrm{.}07$ per unit

Call option exercise price RM$5\mathrm{.}7515$

$90-$day interest rate $$ United Kingdom $2\%$

$90-$day interest rate $$ Malaysia $3\%$

REQUIREMENT:

Write a report that discusses the following:

$1.$ Factors that affect the value of the foreign currency $()$ over time.

$2.$ How to use currency forward hedge on the receivable.

$3.$ How to use currency option hedge on the receivable.

$4.$ How to use money market hedge on the receivable.

$5.$ How to ensure payment for the products that KR exports to Bath.