question 1

KP Production Sdn Bhd (KPSB) is expecting to receive US$10,000,000 in export sales from United States in 90 days. The current spot rate is RM3.0380/USS and the 90-day forward rate is RM3.0120/USS. The 90-day interest in Malaysia is 3.5% per annum whereas it is 5% per annum in the United States.

required

i) Identify KPSB's transaction exposure associated with this receivable.

ii) Calculate the ringgit revenue if KPSB is to forward cover this transaction

iii) Compute the ringgit revenue if the company hedges in the money market for this transaction.

iv) Advise KPSB whether to hedge in the forward market or money market. Justify