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.
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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