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Contract to purchase goods from a manufacturer

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Reference no: EM133071337

A New Zealand company has signed a contract to purchase goods from a manufacturer in Spain for €3,000,000. The purchase was made in June, with payment due three months later in September.

The following market quotes are available:
The spot exchange rate is NZ$ 0.70 per €
The six-month forward rate NZ$ 0.73 per €
The euro 3-month borrowing rate is 7%
The euro 3-month deposit rate is 7%
The NZ dollar 3-month borrowing rate is 7%
The NZ dollar 3-month deposit rate is 7%

Given the market quotes above, what is the best strategy for this New Zealand company to hedge its transaction exposure? Show your calculations for forward hedge and money market hedge to justify the answer.

Reference no: EM133071337

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