Forward versus Money Market Hedge on Payables.
Assume the following information: 90 day U.S. interest rate = 4%
90 day Malaysian interest rate = 2%
90 day forward rate of Malaysian ringgit = $.80
Spot rate of Malaysian ringgit = $.78
Assume that the Mississippi Airlines in the United States will need 450,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Show your work with estimated costs for each type of hedge.