Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company priced in American dollars...

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Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company priced in American dollars at the spot rate on a three month credit period. Kiambu County Government has all its money tied up in its operations but it could borrow in Kenya if necessary. Given: Interest rates (Quarterly) USA Kenya Exchange rates 4% 2.5% Spot: $1/Kshs.76.22-76.92 3 month forward $1/Kshs.64.23-64.93 There is a three month dollar call option at a premium of $25,000 at an exercise price of Kshs.66.53. Required: Using suitable computations, illustrate three strategies available to Kiambu County Government in managing this exposure and advice on the suitable techniques. Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company priced in American dollars at the spot rate on a three month credit period. Kiambu County Government has all its money tied up in its operations but it could borrow in Kenya if necessary. Given: Interest rates (Quarterly) USA Kenya Exchange rates 4% 2.5% Spot: $1/Kshs.76.22-76.92 3 month forward $1/Kshs.64.23-64.93 There is a three month dollar call option at a premium of $25,000 at an exercise price of Kshs.66.53. Required: Using suitable computations, illustrate three strategies available to Kiambu County Government in managing this exposure and advice on the suitable techniques.

Answer rating: 100% (QA)

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