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Answered: - ABC Limited a UK firm has been invited to tender for a contract


ABC Limited a UK firm has been invited to tender for a contract in kenya with the local currency of khs, the company thinks that the contract should cost UK pound 1850000 and is prepared to price the contractat UK pound 2000000 the current exchange rate is 1 pound=kshs 2.80. The company therefore bids for kshs 5.6m the contract would not be awarded until after 6 months. A 6 months currency option to sell kshs 5,600,000 at an exchange rate of 1 pound =kshs 2.8 ABC limited can either buy the option or enter into a forward exchange contract at a rate of 1pound =khs 2.8 . Assume that the company failed to the contract and the spot rate in 6 months time is 1pound =khs 2.5. Required advice the company on which alternative is better

 


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Oct 07, 2020

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