UMITA (Malaysia)'s normal trading currency is MYR. Today, The company was informed by Big M (USA)...
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UMITA (Malaysia)'s normal trading currency is MYR. Today, The company was informed by Big M (USA) that it had won a USD 10,000,000 bid to supply and install an electronic ticketing system. According to the tender specification, the company will have 5 months to supply and install the system. Upon delivery, testing and commissioning of the system at the end of the 5-month period, Big M will make full payment 1 month later. Today, Maybank (Malaysia) has offered the company the following quotes: Spot rate MYR4.1081 -4.2095 / USD MYR4.1086 -4.2099 / USD MYR4.1091 -4.2103/USD 2.45% per year 4.45% per year 2.55% per year 1-month forward rate 6-month forward rate 1-month MYR deposit rate 1-month MYR borrowing rate 6-month MYR deposit rate 6-month MYR borrowing rate 1-month USD deposit rate 1-month USD borrowing rate 6-month USD deposit rate 6-month USD borrowing rate 4.75% per year 3.5% per year 5.5% per year 3.65% per year 5.85% per year MYR0.003/USD premium 1-month call option on USD (MYR 4.2088/USD strike) 6-month call option on USD (MYR 4.1090/USD strike) 1-month put option on USD (MYR 4.2082/USD strike) 6-month put option on USD (MYR 4.1086/USD strike) MYR0.005/USD premium MYR0.006/USD premium MYR0.009/USD premium Required: Explain how the company could execute the following strategies to protect itself from potential losses in foreign currency exposure: (a) money market hedging strategy (b) forward market hedging and (c) options strategy Show your workings and recommendation clearly. UMITA (Malaysia)'s normal trading currency is MYR. Today, The company was informed by Big M (USA) that it had won a USD 10,000,000 bid to supply and install an electronic ticketing system. According to the tender specification, the company will have 5 months to supply and install the system. Upon delivery, testing and commissioning of the system at the end of the 5-month period, Big M will make full payment 1 month later. Today, Maybank (Malaysia) has offered the company the following quotes: Spot rate MYR4.1081 -4.2095 / USD MYR4.1086 -4.2099 / USD MYR4.1091 -4.2103/USD 2.45% per year 4.45% per year 2.55% per year 1-month forward rate 6-month forward rate 1-month MYR deposit rate 1-month MYR borrowing rate 6-month MYR deposit rate 6-month MYR borrowing rate 1-month USD deposit rate 1-month USD borrowing rate 6-month USD deposit rate 6-month USD borrowing rate 4.75% per year 3.5% per year 5.5% per year 3.65% per year 5.85% per year MYR0.003/USD premium 1-month call option on USD (MYR 4.2088/USD strike) 6-month call option on USD (MYR 4.1090/USD strike) 1-month put option on USD (MYR 4.2082/USD strike) 6-month put option on USD (MYR 4.1086/USD strike) MYR0.005/USD premium MYR0.006/USD premium MYR0.009/USD premium Required: Explain how the company could execute the following strategies to protect itself from potential losses in foreign currency exposure: (a) money market hedging strategy (b) forward market hedging and (c) options strategy Show your workings and recommendation clearly.
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To protect itself from potential losses in foreign currency exposure the company can consider the following strategies a Money Market Hedging Strategy In a money market hedging strategy the company ca... View the full answer
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ISBN: 978-1119401742
1st edition
Authors: Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
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