Company A has taken delivery of 50,000 electronic devices from a Malaysian company. The seller is in

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Question:

Company A has taken delivery of 50,000 electronic devices from a Malaysian company. The seller is in a strong bargaining position and has priced the devices in Malaysian dollars at M$12 each. It has granted Company A three months’ credit. Malaysian interest rates are 3 percent per quarter.

Company A has all its money tied up in its operations but could borrow in sterling at 3 percent per quarter (three months) if necessary.

Forex Rates	Malaysian dollar/£
Spot	5.4165
Three-month forward	5.425

Three-month sterling put, Malaysian dollar call currency option with a strike price of M$5.425/£ for M$600,000 is available for a premium of M$15,000.

Required

Discuss and illustrate three hedging strategies available to Company A. Show all calculations Weigh up the advantages and disadvantages of each strategy