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Making appropriate hedge strategy

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You are the treasurer of Sarpco Ltd, a Ghanaian company. Sarpco needs to pay 100,000,000 naira in 6 months from today for goods imported from Nigeria. Assume the following market information:

Spot exchange rate: 76.00/GH

6-month forward rate: 71.50/GH

Interest rates:

Ghana - 20% - 28% per annum

Nigeria - 10% - 16% per annum

Sarpco Ltd is considering hedging its exposure to the naira.

i. Determine whether a forward hedge or a money market hedge would be the most appropriate hedge strategy.

ii. What additional factors would you consider in making a recommendation.

Reference no: EM132412408

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