Assume now is 1st September 2020. Hillview Sdn. Bhd. (Hillview) has exported its frozen seafood amounting to €50,000 to Germany is a member of the European Union. The receipt is expected to fall due in two months’ time. Due to uncertainty of the financial market, the finance manager wishes to hedge the risk exposure faced by the company using forward contract.   Foreign exchange rates:   MYR/EUR(€) Spot                          4.1250 - 4.1259 2 months forward       4.2250 - 4.2258   Required:   i)The company intends to hedge against the foreign exchange risk of the above transaction using a two-months forward. Calculate the expected amount in Ringgit Malaysia (RM) that Hillview is expected to receive in due course.                                                                                                 ii)Differentiate between a spot market and futures market.

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.