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Create a homemade forward contract

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Reference no: EM132911284

Your bank is working with an American client who wishes to hedge its long exposure in the Malaysian ringgit. Assume it is possible to invest in ringgit, but not borrow in that currency. However, you can both borrow and lend in U.S. dollars.

Problem i) Assuming there is no forward market in ringgit, can you create a homemade forward contract that would allow your client to hedge its ringgit exposure? If yes, then provide an example.

Problem ii) Several of your Malaysian clients are interested in selling their U.S. dollar export earnings forward for ringgit. Can you accommodate them by creating a forward contract?

Reference no: EM132911284

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