A U.S. investor will receive dividend from a Sri Lankan coconut exporting company but worries about the

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Question:

A U.S. investor will receive dividend from a Sri Lankan coconut exporting company but worries about the depreciation of the Sri Lankan Rupee in six months due to the expectation in the interest rate rises by the Fed. Calculate hedging alternatives (1. Do Nothing (use spot and forward rates), 2. Forward Sale and 3. Options) and evaluate which alternative best suits to the U.S. investor. Dividend Declared due in Six Months in Sri Lanka Rupee (LKR) Spot Rate (LKR/USS) Six Forward Rate (LKR/US$) LKR 4,350,000 196