Using forward hedge or money market hedge

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Reference no: EM132044762

Assume the following information:

90 day U.S. interest rate = 4%

90 day Malaysian interest rate = 3%

90 day forward rate of Malaysian ringgit = $.400

Spot rate of Malaysian ringgit = $.404

Assume that the Santa Barbara Co. in the United States will need 500,000 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? Substantiate your answer with estimated costs for each type of hedge.

Reference no: EM132044762

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