Foreign currency risk management - money market hedge - F9

Money market hedge may be difficult to understand. It involves the consideration of interest rate and exchange rate. However if you get the idea then it will be very easy to answer the question.

Hedging foreign currency receipt
In this case, we aim to create a foreign currency liability. Later when the money is received, we will use this money to settle this liability. With this, the foreign currency receipt will not be subjected to risk of fluctuation in exchange rate. By creating this liability, we borrow in foreign currency, by translating it to home currency we have a certain amount of money immediately which can be deposited to earn interest or invested.
Remember, in creating the foreign currency liability, we only need to borrow enough so you have to take into account the interest rate, ie. amount to borrow x (1 + borrowing interest rate) = foreign currency receipt.

Hedging foreign currency payment
This is just the opposite. We aim to create a foreign currency asset and later we will take the money out from this foreign currency account and pay the foreign currency payment. This means we will borrow home currency money and translate to foreign currency and deposit it (create foreign currency asset). With this, we are not subject to risk of fluctuation in exchange rate from the time we owe the money to the time we have to pay the money, therefore transaction risk is managed.
Remember, in creating the foreign currency asset (deposit), again we only need to borrow enough to deposit, ie. amount to deposit x (1 + depositing interest rate) = foreign currency payment.

With these basic ideas in mind, try to tackle some questions. :)