Assume you purchase raw materials worth 5 million GHS from a company in Ghana. You have negotiated credit terms that allow you to make payment in 180 days. The spot exchange rate is 1 USD = 5 GHS. However, you are concerned that the currency of Ghana may appreciate in the future and increase your cost of raw materials in dollar terms. You have been unable to find a bank willing to enter into a forward contract with you. There are no options available either. How can you hedge your risk. Interest rates in US and Ghana are 3% and 2%, respectively. The cost of capital for the firm is 9%. Explain your logic in words. Show math. Provide complete answer supported by logic and analysis.

Answer rating: 100% (QA)

To hedge the currency risk associated with the potential appreciation of the Ghanaian cedi you can u... View the full answer