WaFlo Co is a -based company which has the following expected transactions..

One month: Expected receipt of240,000

One month: Expected payment of140,000

Three months: Expected receipts of300,000

As the Corporate Finance Manager for WaFlo CO. you collect the following information:

Spot rate (K per K):1.7820 0.0002

One month forward rate (K per K):1.7829 0.0003

Three months forward rate (K per K):1.7846 0.0004

Money market rates for WaFlo Co:

BorrowingDeposit

One year Kwacha interest rate:4.9%4.6

One year dollar interest rate:5.4%5.1

Assume that it is now 1 April.

Required:

(c) Calculate the expected Kwacha receipts in one month and in three months using the forward market.

(d) Calculate the expected Kwacha receipts in three months using a money-market hedge and recommend whether a forward market hedge or a money market hedge should be used.

(e) Discuss how Kwacha currency futures contracts could be used to hedge the three-month dollar receipt.

Zambian based company