Glovy Bhd. (Glovy) a Malaysian manufacturer and exporter of latex examination and surgical glove had just signed a contract to sell its products to the US. Glovy is expecting a payment of $40 million from the US importer in one year. The current spot exchange rate is RM3.7220/$ and the one year forward rate is RM3.6590/$. The annual interest rate is 5.5% in the US and 4.0% in Malaysia. Glovy is concerned with the volatile exchange rate between ringgit and the dollar and would like to hedge exchange exposure. 

The company is considering two hedging alternatives: money market hedge and the forward hedge. Which alternative would you recommend? Support your answer with relevant calculations.

Answer rating: 100% (QA)

To determine the preferred hedging alternative for Glovy Bhd lets calculate the costs associated wit... View the full answer