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Triumph Plc in UK has bought goods from a US supplier, and have to pay USD4,000,000 to the supplier in three months’ time. The company’s finance director wishes to hedge against the foreign exchange risk, and the methods
which the company usually considers are:? Using forward exchange contracts
? Using money market borrowing or lendingThe following annual interest rates and exchange rates are currently available.
USD Pound Sterling
Deposit rate (%) Borrowing rate (%)Deposit rate (%) Borrowingrate(%)
1 month 7 10.25 10.75 14.00
3 months 7 10.75 11.00 14.25Exchange rate SELL BUY
Spot 1.8625 1.8635
1 month forward 1.8565 1.8577
3 month forward 1.8445 1.8460a) Elaborate the following:
i) forward exchange contract (10)
ii) money market hedging (10)
Determine which is the cheapest method for Triumph Plc? Ignore commission costs (the bank charges for arranging a forward contract or a loan).
Can dear sir / madam help me out with this question.
Looking forward to hear soon dear sir / madam.Thank you
This is all covered in detail in the free Paper F9 lectures on foreign exchange risk management. I obviously cannot type out the whole lecture here 🙂
Thanks for the reply sir.
since im new here sir, can u assist me in this question sir
im a degree student in accounting
i dont understand about the free paper F9 sir. can u send me the link to get it sir.
Thanks alot sir
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