(Solved): Question 2 The U.S. corporation, CAB Inc., which imports and exports electric cars, has a significa ...

Question 2 The U.S. corporation, CAB Inc., which imports and exports electric cars, has a significant commercial partnership with Vietnam. Assuming you are the company's treasury manager, and your duties will include identifying and mitigating currency risks. The fluctuating exchange rate between the US Dollar (USD) and the Vietnamese Dong (VND) is now worrying you. You are investigating several techniques to protect yourself against the related currency rate risk in this situation. The company successfully signed a deal to supply electric cars to a customer with headquarters in Vietnam. The concern in question entails a substantial value of VND5 million, with the stipulated payment becoming due precisely three months from now. In order to mitigate potential foreign exchange risk, the Financial Director is inclined to adopt a hedging strategy. Notably, CAB Inc. currently lacks surplus funds to accommodate the credit period. However, the company possesses the capability to secure short-term loans at a rate of $2\%$ above the prevailing money market rates or, alternatively, to invest at a rate of $2\%$ below the said market rates. The company's bank has provided the following indicative rates. Given the exchange rate of VND per USD 1; Spot:12.6898 - 12.6968; 1 month forward: $12.6767-12.6870;3$ month forward: 12.6480-12.6704. Current money market interbank rates. US: 7.0\% - 6.75\%; Vietnam: 5.25\% - 5.0\% (a) Calculate and evaluate the two distinct strategies for hedging using (i) the money market and (ii) the forward foreign exchange market, to ascertain the proceeds. Show all calculations and assumptions made. Suggest which of the two approaches, considering all pertinent criteria, seems to be the most financially beneficial for CAB Inc.