PT Gas Co is a large multinational company in the UK with a number of subsidiary companies around the world. One of the subsidiary is Laxamana Co which is based in US. PT Gas Co is owing to Laxamana Co amounted to US$2.4 million. PT Gas Co want to hedge against the USD strengthening against the because if the depreciates against the USD, then the PT Gas Co has to spend more to buy the USD later at the end of 3 months.

Other information available are: 1. Current exchange rate (US$/1): Spot 1.5962 3-month futures 1.6037

2. Contract size 62,500 3. In 90 days time the spot is 1.6213 $/ 4. Assume that the basis is zero at the maturity of the futures contract

(ACCA)

Required: 1. Advise PT Gas Co the hedging strategies for the US$ cash flow that is due to pay in three months to Laxamana Co using currency futures. Show all the relevant calculations.

(15 marks)