ABC Ltd, a USA company has a debt of £10,000,000 from a British company to be paid in three months. The finance manager has provided the following additional information:

British pound spot rate:                   $2.0290

British pound 3-month forward rate:   $2.0032

3-month interest rate in the US:              2%

3-month interest rate in the UK:              3%

Advise the company whether to use a forward market hedge or a money market hedge.

Answer rating: 100% (QA)

To advise ABC Ltd on whether to use a forward market hedge or a money market hedge we need to compar... View the full answer