Kikopy Ltd, a Kenyan Company, has a substantial proportion of its trade with Uganda and Tanzanian Companies.
It has recently invoiced a Tanzanian Company the sum of Tsh.5,000,000 receivable in one year's time. The Finance Director of Kipkopy Ltd is considering two methods of hedging the exchange risk.
Method 1
Using Money Market Instruments
Method 2
Using Forward Exchange Contract where the spot exchange rate and the 12 months forward exchange rates respectively are:
Spot Ksh.1=Tsh.1.4455
Forward Ksh.1=Tsh.1.4165
The annual interest rates are:
Tanzania 3.5%
Kenya 5.75%
Require: i) Net proceeds in Kenya shillings under both methods (6 marks)
ii) Based on your ans above, advise the mngmnt of Kikopy Ltd on the more advantageous method of hedging the exchange risk.
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Money Market Instruments & Forward Exchange Contract
13y ago#1I don't know what your question is (unless you are expecting me to answer all this question, wherever it came from!).
I am happy to answer specific problems you might have, but you cannot expect us to answer your assignments for you.
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