Assume that XYZ co. from the United States will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with appropriate quantitative evidence?
The following assumptions are taken
- 180-day U.S. interest rate = 4%
- 180-day British interest rate = 4.5%
- 180-day forward rate of British pound = $1.70
- Spot rate of British pound = $1.80