What is the hedged value using forward contracts

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An exporter in the US has sold 20 million (in Pounds) in goods to one company in UK. Payment is due in 180 days.

Spot rate (USD/GBP): 1.7500 - 50

180-day forward rate (USD/GBP) 1.8050 - 90

180-day USD interest rate 3.00 - 4.00% p.a.

180-day GBP interest rate 1.50 - 2.00% p.a.

Required:

a. What is the hedged value of this exporter's receivable using the money market hedge?

b. What is the hedged value using forward contracts?

c. Which of the hedging alternatives analysed in parts (a) and (b) would you recommend to the exporter and explain the reason why this alternative is chosen?

Reference no: EM133003212

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