KP Production Sdn Bhd (KPSB) is expecting to receive US$10,000,000 in export sales from United States in 90 days. The current spot rate is RM3.0380/USS and the 90-day forward rate is RM3.0120/USS. The 90-day interest in Malaysia is 3.5% per annum whereas it is 5% per annum in the United States. required i) Identify KPSB's transaction exposure associated with this receivable. ii) Calculate the ringgit revenue if KPSB is to forward cover this transaction iii) Compute the ringgit revenue if the company hedges in the money market for this transaction. iv) Advise KPSB whether to hedge in the forward market or money market. Justify
KP Production Sdn Bhd (KPSB) is expecting to receive US$10,000,000 in export sales from United States in 90 days. The current spot rate is RM3.0380/USS and the 90-day forward rate is RM3.0120/USS. The 90-day interest in Malaysia is 3.5% per annum whereas it is 5% per annum in the United States. required i) Identify KPSB's transaction exposure associated with this receivable. ii) Calculate the ringgit revenue if KPSB is to forward cover this transaction iii) Compute the ringgit revenue if the company hedges in the money market for this transaction. iv) Advise KPSB whether to hedge in the forward market or money market. Justify
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 54QA
Related questions
Question
KP Production Sdn Bhd (KPSB) is expecting to receive US$10,000,000 in export sales from United States in 90 days. The current spot rate is RM3.0380/USS and the 90-day forward rate is RM3.0120/USS. The 90-day interest in Malaysia is 3.5% per annum whereas it is 5% per annum in the United States.
required
i) Identify KPSB's transaction exposure associated with this receivable.
ii) Calculate the ringgit revenue if KPSB is to forward cover this transaction
iii) Compute the ringgit revenue if the company hedges in the
iv) Advise KPSB whether to hedge in the forward market or money market. Justify
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you