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On February 14, 2012 KD needs to hedge a dividend due on September 15th using...

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Accounting

On February 14, 2012 KD needs to hedge a dividend due on September 15th using a forward rate contract or money market hedge, which is better an why?

Payment coming in is $3 million euro (home currency is $)

KD can typically borrow in the Eurocurrency market at LIBOR + 1% and lend at LIBID.

Euro Money Rate

Bid ask

1.35 1.40

US Money Rate

Bid ask

0.7800 .8300

LIBOR 0.75%

LIBID 0.50%

Spot = USD/ EURO = 1.3088

7 month = USD/ EURO = 1.3090

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