(please note that this isnt the exact traditional Blades, Inc. case as the spot rates of the British pound and Thai baht are switched)

Blades, Inc., has recently decided to expand its internationaltrade relationship by exporting to the UnitedKingdom. Jogs, Ltd., a British retailer, has committeditself to the annual purchase of 200,000 pairs ofSpeedos, Blades' primary product, for a price of 80per pair. The agreement is to last for two years, atwhich time it may be renewed by Blades and Jogs.In addition to this new international trade relationship,Blades continues to export to Thailand. Its primarycustomer there, a retailer called EntertainmentProducts, is committed to the purchase of 180,000pairs of Speedos annually for another three years at afixed price of 4,594 Thai baht per pair. When theagreement terminates, it may be renewed by Bladesand Entertainment Products.Blades also incurs costs of goods sold denominatedin Thai baht. It imports materials sufficient to manufacture72,000 pairs of Speedos annually from Thailand.These imports are denominated in baht, and theprice depends on current market prices for the rubberand plastic components imported.Under the two export arrangements, Blades sellsquarterly amounts of 50,000 and 45,000 pairs ofSpeedos to Jogs and Entertainment Products, respectively.Payment for these sales is made on the first ofJanuary, April, July, and October. The annual amountsare spread over quarters in order to avoid excessiveinventories for the British and Thai retailers. Similarly,in order to avoid excessive inventories, Blades usuallyimports materials sufficient to manufacture 18,000pairs of Speedos quarterly from Thailand. Althoughpayment terms call for payment within 60 days ofdelivery, Blades generally pays for its Thai importsupon delivery on the first day of each quarter inorder to maintain its trade relationships with the Thaisuppliers. Blades feels that early payment is beneficial,as other customers of the Thai supplier pay for theirpurchases only when it is required.Because Blades is relatively new to internationaltrade, Ben Holt, Blades' chief financial officer, is concernedwith the potential impact of exchange rate fluctuationson Blades' financial performance. Holt isvaguely familiar with various techniques available tohedge transaction exposure, but he is not certainwhether one technique is superior to the others.Holt would like to know more about forward,money market, and option hedges and has asked you,a financial analyst at Blades, to help him identify thehedging technique most appropriate for Blades. Unfortunately,no options are available for Thailand, butBritish call and put options are available for 31,250per option. Holt has gathered and provided you withthe following information for Thailand and the UnitedKingdom

(table 1)