Assume the following information: 90-day U.S. interest rate 4% 90-day Malaysian interest rate 3% 90-day forward rate of Malaysian ringgit $.400 Spot rate of Malaysian ringgit $.404 Assume that the Santa Barbara Co. in the United States will need 300,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
Assume the following information: 90-day U.S. interest rate 4% 90-day Malaysian interest rate 3% 90-day forward rate of Malaysian ringgit $.400 Spot rate of Malaysian ringgit $.404 Assume that the Santa Barbara Co. in the United States will need 300,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
Chapter21: International Cash Management
Section: Chapter Questions
Problem 3ST
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Question
Assume the following information:
90-day U.S. interest rate |
4% |
90-day Malaysian interest rate |
3% |
90-day forward rate of Malaysian ringgit |
$.400 |
Spot rate of Malaysian ringgit |
$.404 |
Assume that the Santa Barbara Co. in the United States will need 300,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a
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