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SLD limited is a company based in the United Kingdom (UK) that specializes in the manufacturing of locks for both the domestic market and for export to the United States of America(USA). the company exported security locks worth $1,800.00 to a company in the USA in March 2016. SLD Limited expects to be paid in June 2016 but wants to loack into the current exchange rate of $1.75.
Officials of SLD limited anticipated that the pound sterling will appreciate against the United States Dollar and the management of the company have been advised to set up a money market hedge using the Eurocurrency market in order to insulate the company against any transaction exposure. Currently the dollar borrowing rate is 9% per annum and the sterling deposit rate is 8% per annum.
Required
a) Describe how SLD limited can use money market hedge to insulate itself from the anticipated transaction exposure.
b) Explain one alternative hedging technique that SLD limited can use apart from money market hedge.
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