Which hedging strategy is the most cost-effective for managing the company's euro-denominated liability: a forward hedge, a money market hedge, or a…

Forward Hedge Particulars Amount Forward Rate 104/€ Amount required to be paid after 3-months (€15000 x 2) €30,000 Amt. payable in ₹ as per applicable Forward Rate 31,20,000 Money Market Hedge Particulars Amount Amount to be deposited in € [€30000/(1+0.04/4)] €29,702.97 Spot Rate 102/€ Amt. need to be borrowed in 30,29,706 Add: Interest payable @ 10% for 3 months [₹ 30,29,706 x (0.10 x 3/12)] 76,376 Amt. payable after 3-months 31,06,079 Forward Hedge under LC Option Particulars Amount Cost of letter of credit At 1.5% on €30000 at 1 € = 102 45,900 Add: Interest for 1 Quarter [₹ 45,900 x (0.10 x 3/12)] 1,157 (A) 47,057 Payment at the end of 90 days: Cost €30,000 Commission at 2% p.a. [€30000 x 2/100 x 1/4] €150 €30,150 Conversion at 104 (B) 31,35,600 Total Cost: (A) + (B) 31,82,657 Since cash outflow is least in Money Market hedge it should be opted for.