Diva Limited is a South African-based manufacturer of the latest electronic automobile devices. The company is currently investigating a project to invest in for expansion from America. The cost of the investment is $9 300 000. The supplier requires three equal installments with the first installment payable immediately and the remaining balance paid every three months thereafter. The banks quoted direct spot and forward exchange rates are as follows:

Spot rate 16.4231

3 – month forward rate 16.6472

6 – month forward rate 16.8782

1.1 Determine the rand equivalents of the payments to be made to the supplier for the investment assuming that Diva Limited undertakes forward cover on all foreign currency obligations. 

1.2 Discuss how Diva Limited can hedge against transaction exposure using the following techniques:

1.2.1 Matching cross-frontier currency flows 

1.2.2 Change currency of invoice 

1.2.3 Money market hedge 

1.2.4 Currency options 

1.2.5 Swaps 

Answer rating: 100% (QA)

11 1st installment 9300000 164231 152369430 2nd installment ... View the full answer