Transaction exposure risk management (10 marks} PR travel, a Sydney based 100% privately owned travel company, has signed an agreement to acquire a 50% ownership share of Hotspot Travel, a Saudi Arab based privately owned 500,000 SAR (Saudi Arab real] (SAR500,000) payable in cash in three months.

Pradip Royhan, PR travel's owner, believes that the Saudi Arab Real will either remain stable or decline a little over the next three months. At the present spot rate of SAR2.5/A5, the amount of cash required is only about AS200,000, but even this relatively modest amount will need to be borrowed personally by Pradip Royhan. Saudi Arab interest—bearing deposits by non—residents are regulated by the government and are currently set at 2.5% per year. He has a credit line with National Australia Bank for $200,000 with current borrowing interest rate of 7.5% per year. He does not believe that he can calculate a credible weighted average cost of capital, as he has no stock Outstanding and his competitors are all also privately owned, without disclosure of their financial results, because the acquisition would use up all his available credit, he wonders whether he should hedge transaction exposure. He has the following quotes from NAB:
Spot rate SAR2.50/As
3-month forward rate SAR2.30/A$
3-moth AS borrowing rate 6.50% per year
3-moth RM deposit rate 2.50% per year
3-moth call options Not available

Required:
Analyse the costs and risks of each alternative and then make a recommendation as to which alternative Pradip Royhan should choose.