Advise the company on the best method to use

Reference no: EM133665313

Problem: KTC a kenyan firm has bought goods from a tanzanian manufacturer and will pay Tsh 800 million in four months time. The company wishes to edge against the foreign exchange rate risk and is considering 4 methods. 1. Using a lead paymen 2. Using forward exchange contract 3. Using the money market hedge 4. Using currency option Annual interest rates and foreign exhnage rates are as below Spot: Ksh 1: Tsh: 20.75 - 20.75. 4 months forward 15-10 cents. The 4 months borrowing rate in Tsh is 18% and the deposit rate is 15%. The 4 months borrowing rate in Ksh is 13% and the deposit rate is 10%. A four month currency option to buy Tsh 800 Million at an exchange rate of Ksh 1: Tsh: 20.25-20.75 is currently costing Ksh. 30,000. Advise the company on the best method to use.

Reference no: EM133665313

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