Unga Ltd international Ltd is an import-export company based in Kenya. On I September 2022, the...

  

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Unga Ltd international Ltd is an import-export company based in Kenya. On I September 2022, the company exported coffee to South Africa on a three months credit amounting to South African Rands (SAR) 15,000,000 Additional Information: 1) The rates in the forex and money markets were as follows: Ksh/1SAR 7.80 7.95 1 September 2022 1 December 2022 Interest rates Kenya 16 % per annum South Africa 14 % per annum 2) The customer settled the amount on 1 December 2022 Required: i) Using the Interest rate parity, determine the expected three months forward exchange rate as at 1 December 2022 (3 Marks) li) Using suitable computations, advice Upendo Ltd on which is the better hedging strategy between a forward contract and money market hedge (8 Marks) Unga Ltd international Ltd is an import-export company based in Kenya. On I September 2022, the company exported coffee to South Africa on a three months credit amounting to South African Rands (SAR) 15,000,000 Additional Information: 1) The rates in the forex and money markets were as follows: Ksh/1SAR 7.80 7.95 1 September 2022 1 December 2022 Interest rates Kenya 16 % per annum South Africa 14 % per annum 2) The customer settled the amount on 1 December 2022 Required: i) Using the Interest rate parity, determine the expected three months forward exchange rate as at 1 December 2022 (3 Marks) li) Using suitable computations, advice Upendo Ltd on which is the better hedging strategy between a forward contract and money market hedge (8 Marks)

Answer rating: 100% (QA)

i To determine the expected threemonth forward exchange rate as of 1 December 2022 using the Interest Rate Parity IRP we can use the following formula ... View the full answer