Forward versus money market hedge on payables

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Reference no: EM13951602

Forward versus Money Market Hedge on Payables.

Assume the following information: 90 day U.S. interest rate = 4%

90 day Malaysian interest rate = 2%

90 day forward rate of Malaysian ringgit = $.80

Spot rate of Malaysian ringgit = $.78

Assume that the Mississippi Airlines in the United States will need 450,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Show your work with estimated costs for each type of hedge.

Reference no: EM13951602

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