CQS plc is a UK company that sells goods solely within the UK. CQS plc has recently
Question:
CQS plc is a UK company that sells goods solely within the UK. CQS plc has recently tried a foreign supplier in Netherland for the first time and needs to pay €250,000 to the supplier in six months’ time. You as a financial manager are concerned that the cost of these supplies may rise in Pound Sterling terms and have decided to hedge the currency risk of this account payable. The following information has been provided by the company’s bank:
Spot rate (€ per £): 1·998 ± 0·002
Six months’ forward rate (€ per £): 1·979 ± 0·004
Money market rates available to CQS plc:
Borrowing Deposit
One-year Pound Sterling interest rates: 6·1% 5·4%
One-year Euro interest rates: 4·0% 3·5%
Assuming CQS plc has no surplus cash at the present time you are required to evaluate whether a money market hedge, a forward market hedge or a lead payment should be used to hedge the foreign account payable.
The answer should be a min of 800 Words with plagiarism-free
Financial Institutions, Markets and Money
ISBN: 978-1119330363
12th edition
Authors: David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias