Question

The CeeDee Lamb Company has a Ringgit 1 Million receivable that it will collect in six months. What are the major hedging techniques it can use to minimize its currency risk on this receivable?

Answer 1

The cee Lamb company will recived 1 million recivable in six month. which show the foreign exchange fluctuation risk due to time gape of 6 month . Hence, it is possible to minimize the risk of forighn exchange fluctuation by using hedging method.i.e.

a. Take a Forward contract for six month, so fixed price as per forward rate will be recived at the end of six month . Hence currency fluctuation risk will be minimise.

v. Second method is to borrow the equivalent amount of froeigh exchange fund and the same in home currency by using arbitrage gain as mentioned in interest parity theorem.