ON 1st march 2016, kilima limited exports goods to the USA firm RACHEL Inc. The USA FIRM IS DUE TO PAY $2140000 IN SIX months’ time to august 2016.kilima limited is concerned that the US DOLLAR weakens against the Kenyan shillings before us dollar is received.
Exchange rates
Spot rate KES101.50/$1 - KES103.50/$1
Forward rates
Six months forward KES97.20/$1 - KES 99.50/$1
Nine months forward KES 95.40/$1 - KES 97.50/$1
Interest rates
Kenya shillings six months’ rate 16.5% - 20.25%
Us dollar six months’ rates 5.5% - 6.2%
Required
Evaluate the best method for kilima limited to hedge the currency risk on this transaction using
Money market hedge
Forward contract
NB ALSO ADVICE ME THE BEST BOOK ON FINANCIAL DERIVATIVES WITH QUESTIONS AND ANSWERS