V=4 W=3Prize in usd = 20+10x4=60Cost imported components= 3000+100x3=3300 baht

Number of baht received in 90 days, (inflow)Numer of pairs = 45000Revenue per pair= 4594= 45000x4594= 206,730,000

Number of baht that will be needed in 90 days(Outflow)Number of pairs made =18000Cost per pair = 3300=18000x3300=59,000,000

Net inflow= 206,730,000-59,000,000=147330000

Using forwards:Forward rate 0.0143Sell forward contract:152730000x0.0143=2,184,039

Money market:Borrow amount in baht=147330000/1.04=141663461.5Convert to pound =2,167,450.96Lend pound for 90 days =2,167,450.96x1.021=2212967.43

Possible amount without hedgeSpot rate bath 90 days Possible amount of baht

5%0.01331959489

20%0.0142202086

30%0.01452136285

25%0.01472165751

15%0.01532254149

5%0.01572313081

On bases of this analyses silver ltd should hedge it exposure because there is only a 20% change that the amount raised will be higher than the amount received via the money market hedge.

Dollar inflow=Number of speedos sold = 50000Prize per pair= 60 dollars60x50000=3,000,000

There is no dollar outflow

Forward hedge Sell dollar forwardsNet inflow of dollars= 3,000,000Forward rate is = 0.673,000,000x0.67=2010000

Money market hedgeBorrow dollars 3,000,000/1.02=2,941,176.47Converting to pounds= 2941176.47x0.66=1941176.471941176.47x1.021=1981941.18

Put option hedgeSpot rate 90dpremiumExercise optionTotal pound received per dollar-premiumTotal pound received after conversionprobability

0.690.005no0.68520550005%

0.680.005yes0.675202500020%

0.6750.005yes0.67202500030%

0.67100.005yes0.666202500025%

0.6660.005yes0.661202500015%

0.6580.005yes0.65320250005%

Not form of hedgingSpot rate dollar 90daysPossible amount of

5%0.692070000

20%0.682040000

30%0.67502025000

25%0.67102013000

15%0.6661998000

5%0.65801974000

Based on the analyses we can conclude that the put option hedge is the best choice because there is only a 25% chance that the spot rate is above the exercise price and is therefore the best option.

3. Inflows are easier to hedge because there is only one uncertain factor namely the exchange rate changes. With outflows the market price as well as the exchange rate change so this is more difficult to hedge4. Silver could completely offset the baht inflows by manufacturing as much speedos as there revenue allows. In this case 206,730,000/3000=68910 speedos. But this could lead to other problems for example higher inventory costs. 5. yes is they would choose to not pay their supplies immediately but wait the full term of the invoice. If in this period the baht depreciates silver would save money. 6.They could do this because they have long term agreements with both Thai and American customers. This means that they know when there are inflows. Long term hedging is useful when you can accurately predict your receivables . So they can benefit from long term hedging.