Suppose that Stride Corp. expects to pay its supplier in Thailand. The amount to transfer in 90 days from today is 6 million Thai baht (THB). The firm observes the following quotes for currency exchange rates and interest rates

THB spot today : S = $0.0300

THB 90-day forward : F = $0.0297

THB 90-day interest rate : r^TH = 2.0% over 90 days

USD 90-day interest rate : r^US = 1.0% over 90 days

The firm is evaluating whether it should use money market instruments or forward contracts to hedge its foreign exchange exposure.

a) Assume the firm must borrow to cover the funds required. Describe the steps involved in the execution of its money market hedging.

b) What will be the notional amount of funds, in US dollars, required at the payables due if the firm relies on the money market hedging? What if it opts for the forward hedging method? Determine whether either of the two hedging methods result in a lower cost.