ABC LTD is a Kenyan company based at the EPZ dealing in apparels. They are beneficiaries of the AGOA agreements and thus export clothing materials to the USA. In February 2013, they entered into an agreement to export clothing materials to the USA and expect to receive USD 100,000 one year down the line. They also import machinery from Canada and are planning to buy a cloth dying machine from Canada in February 2014 at C$ 140,000.
Below is additional information:
Spot rate (i) Ksh.84/USD at the time of entering into contract
Spot rate (ii) Ksh. 69/C$ at the time of entering into contract
One year forward rate (to sell) Ksh.78/USD
One year forward rate (to buy) Ksh. 74/C$
One year call option
Exercise price Ksh.77/USD
Exercise price Ksh.69/C$
One year put option
Exercise price Ksh.78/USD
Exercise price Ksh. 74/C$
February 2014 Spot rate Ksh. 77.25/USD
February 2014 Spot Rate Ksh 76/C$
ABC Ltd has an option of either using the forward rate contract, options or spot rate. You have been contracted as a consultant on international trade to advice ABC LTD. Explain how you would go around it