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Upendo Ltd a company based in US expect to make a payment of 350,000 in 3 Months to a UK Firm. The company is in

Upendo Ltd a company based in US expect to make a payment of 350,000 in 3 Months to a UK Firm. The company is in a paradox of using a forward hedge, a money market hedge or no hedge strategies. Its analysts developed the following information which can be used to access alternative solution: Spot rate of as of today is $1.80 90 days forward rate of pounds today is $1.10 Interest rates are as follows: U.K U.S.A 90 day deposit rate 6 % 4% 90 day borrowing rate 12 % 14% Upendo ltd forecasted the future market rate in 90 days for US dollar per UK Pound as follows: Possible Outcome Probability $1.60 20% $1.65 70% 1.50 10% 2 Required: 1. Demonstrate how the firm will apply the following hedging strategies and hence advise on the best hedging strategy. (i) A forward hedge (5 marks) (ii) A money market hedge (5 marks) 2. By comparing the results of the appropriate hedging strategy in (1) above and the no hedging strategy advise the firm on the appropriate course of action to undertake (5 marks)

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