PT. Sports Wear Indonesia (SWI) has entered into a trade agreement with Arch-Sport, a US based company for importing a volume of sports clothing to Indonesia. The total amount of transaction dealt is USD 50,000. Since the world is still experiencing a covid pandemic, Arch-Sport has given a flexibility in its payment term to SWI up to 6 months-time from now or payable by 2nd week of December 2021. Observing the situation, SWI is exploring the possibilities of applying the hedging techniques i.e., Forward and Money Market. They have been given with the information below:

a. Current Bank Buyings Exchange Rate: USD 1.00 = IDR 14,435 Current Bank Selllings Exchange Rate: USD 1.00 = IDR 14,500

b. According to the global economic forecast, IDR movement against USD will still be volatile and predicted to be weaken against USD until end of the year 2021 due to the uncertain economic situation and prolonged covid pandemic.

c. Forward rate agreed with the local bank is by 1.5 basis points (bps) times total number of days required for hedging (6 months), to be topped up on to the current spot rate.

d. SWI has an IDR credit line facility for investment and short-term financing, available and ready to be drawn at any time with a local bank with a special lending interest rate offered to SWI of 5% / annum.

e. USD deposit rate 0.5% / annum

Given the information above:

a. Calculate and compare the costs of the two hedging techniques mentioned above.

b. Which hedging technique will you choose, why?

c. In case the SWIs internal economic forecast on IDR movement against USD is different compared to what the global economic forecast has predicted, and they projected that the movement of IDR will not be that bad until end of the year 2021, what will be another hedging technique that SWI may use, explain the mechanism and use your own example with the premium amount!