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Calculate the expected kwacha receipts in three months

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Reference no: EM132719619

WaFlo Co is a -based company which has the following expected transactions..

One month: Expected receipt of 240,000

One month: Expected payment of 140,000

Three months: Expected receipts of 300,000

As the Corporate Finance Manager for WaFlo CO. you collect the following information:

Spot rate (K per K): 1.7820 ± 0.0002

One month forward rate (K per K): 1.7829 ± 0.0003

Three months forward rate (K per K): 1.7846 ± 0.0004

Money market rates for WaFlo Co:

Borrowing Deposit

One year Kwacha interest rate: 4.9% 4.6

One year dollar interest rate: 5.4% 5.1

Assume that it is now 1 April.

Required:

Problem 1: Calculate the expected Kwacha receipts in one month and in three months using the forward market.

Problem 2: Calculate the expected Kwacha receipts in three months using a money-market hedge and recommend whether a forward market hedge or a money market hedge should be used.

Problem 3: Discuss how Kwacha currency futures contracts could be used to hedge the three-month dollar receipt.

Reference no: EM132719619

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