Your company is a large Engineering design firm located in Kuala Lumpur. It specializes in producing engineering/structural designs for hospitals and medical related projects. In addition to the many design engineers within your firm, external consultants are used to produce customized designs. The engineering design business is very competitive and your firm frequently bids for projects internationally. You are in the process of submitting a bid to produce engineering design for a new hospital complex to be built in Bishkek, Kyrgyzstan. As the project will be funded by a Saudi based charitable foundation, the quotation has to be in Saudi Riyal (SR). The deadline for the bid is tomorrow and your company has decided to bid SR 25 million for the designs. As this is an international tender, the outcome of the tender will be known in 30 days. The successful bidder will then have 5 months to submit the complete engineering design. Payment in Saudi Riyal will be made on submission of the completed design. Having committed by bidding for the project, you are now worried about the currency exposure. Your company has a policy of hedging currency exposures. You notice the following currency market quotations; - 6 month currency forward rate = RM 1.06 per SR - 6month currency futures = RM 1.055 per SR - RM 1.05, 6month Call Option, premium = RM 0.03 per 100SR - RM 1.05, 6 month Put Option, premium = RM 0.025 per 100 SR The contract size for futures and options is 500,000 SR per contract. (a) Design an appropriate hedge strategy to manage the currency exposure. Explain/justify your choice. (9 marks) (b) Determine the net ringgit amount the firm would receive under your strategy, if it wins the bid. (7 marks)