A Thai company is expecting to receive US $ 3 million from its customer in the US after three months. The current spot exchange rate is Baht 33.75/$ and 90 days forward rate is Baht 35.35/$. What will be the consequences

(a) If the Thai company does not cover its exposure If the company does not cover its exposure, it will receive US $ 3 million at the future spot rate. If the future spot rate is Baht 34.10/$, the company will receive: Cost = $ 3 million * Baht 34.10 = Baht 102.3 million (b) If the Thai company covers 60% 60% covered = $ 3 million * 60% = $ 1.8 million Amount received for covered portion = $ 1.8 million * Baht 35.35 (forward rate) = Baht 63.63 million 40% uncovered = $ 3 million * 40% = $ 1.2 million Amount received for uncovered portion = $ 1.2 million * Baht 34.10 (future spot rate) = Baht 40.92 million Total cost = Baht 63.63 million + Baht 40.92 million = Baht 104.55 million (c) If the Thai company covers 100% exposure by entering into a forward contract Cost = $ 3 million * Baht 35.35 (forward rate) = Baht 106.05 million