Assume that Carbondale Co. expects to make a payment S$500,000 in one year. The existing spot rate of the Singapore dollar is $.60. The one year forward rate of the Singapore dollar is $.63.

Carbondale created a probability distribution for the future spot rate in one year as follows:

Future Spot Rate Probability

$.61 20%

.63 50%

.67 30%

Assume that one year put options on Singapore dollars are available, with an exercise price of $.59 and a premium of $.02 per unit. One year call options on Singapore dollars are available with an exercise price of $.63 and a premium of $.02 per unit.

Assume the following money market rates:

U.S. Singapore

Deposit rate 8% 5%

Borrowing rate 9% 6%

Given this information, Which of the following is not an appropriate hedge strategy?

A. Purchase S$ forward

B. Purchase S$ call option

C. Purchase S$ pution option

D. Borrow $ and invest in S$