Question
Assume that Chicken Inc. expects to receive S$1,000,000 in one year. The existing spot rate of the Singapore dollar is $.60. The oneyear forward rate
Assume that Chicken Inc. expects to receive S$1,000,000 in one year. The existing spot rate of the Singapore dollar is $.60. The oneyear forward rate of the Singapore dollar is $.63. Chicken Inc. created a probability distribution for the future spot rate in one year as follows:
FutureSpotRateProbability
$.5920%
.6350
.6730
Given this information, determine whether a forward hedge or an unhedged strategy is best for Chicken Inc. Show your calculations for a forward hedge and the expected amount if Chicken Inc does not hedge and discuss which is the better option and why.
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