Moyes has taken delivery of 50,000 electronic devices from a firm in Malaysia. The seller is in a strong bargaining position and has priced the devices in Malaysian dollars at M$ 12 each. It has granted Moyes 3 months’ credit. Malaysian interest rates are 3% per quarter. Moyes has all its money tied up in its operations but could borrow in sterling, its home currency at 4% per quarter if necessary. Exchange rate :Malaysian dollar per £ Spot : 5.4165 Three-month forward= 5.425 A three-month sterling put, Malaysian dollar call currency option with a strike price of M$ 5.425/£ for M$ 600,000 is available for a premium of M$ 15,000. Required: a) Discuss, with the help of calculations three hedging strategies available to Moyes. b) Weigh up the advantages and disadvantages of each strategy
Moyes has taken delivery of 50,000 electronic devices from a firm in Malaysia. The seller is in a strong bargaining position and has priced the devices in Malaysian dollars at M$ 12 each.
It has granted Moyes 3 months’ credit. Malaysian interest rates are 3% per quarter. Moyes has all its money tied up in its operations but could borrow in sterling, its home currency at 4% per quarter if necessary.
Exchange rate :Malaysian dollar per £
Spot : 5.4165
Three-month forward= 5.425
A three-month sterling put, Malaysian dollar call currency option with a strike price of M$ 5.425/£ for M$ 600,000 is available for a premium of M$ 15,000.
Required:
a) Discuss, with the help of calculations three hedging strategies available to Moyes.
b) Weigh up the advantages and disadvantages of each strategy
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