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problem: Suppose the following information:

90-day Unites State interest rate = 4 percent

90-day Malaysian interest rate = 3 percent

90-day forward rate of Malaysian ringgit = $.400

Spot rate of Malaysian ringgit = $.404

Suppose that the Santa Barbara Co. in the United States will need 300,000 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? Validate your answer with estimated costs for each type of hedge.

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