Question: you expect to receive zar1 000 00000 in 3 months...
you expect to receive ZAR1 000 000.00 in 3 months time but you are worried about adverse movements (a strengthening dollar) in exchange rates and want to hedge against this; you gather the following information from the money and foreign exchange markets
spot exchange rate $1.7640/ZAR
Three month forward rate $1.7540/ZAR
Forecast spot exchange rate 3 months from now $1.7400/ZAR
Zimbabwe 3month borrowing interest 8%
Zimbabwe's 3 month deposit interest rate 6%
South Africa's 3 month borrowing interest rate 10%
South Africa's 3 month deposit interest rate 8%.
Show how you can hedge against the currency risk using money market hedge.