Asume that Baton Rouge, Inc. wil ned S$1 milion ni one year. The existing spot rate of the Singapore dolar si S6.0. The one year forward rate of hte Singapore dolar is $.62. Theexpectedprobabilitydistributionforthefuturespotratenioneyearasfolows:

Future Spot Rate

Probability $.61 20% 6.3 50 167 30

Assume that one year put options on Singapore dollars are available, with an exercise price of $.63 and apremium of $.04 per unit. One year cal options on Singapore dollars are available with an exercise price of $.60 and a premium of $.03 per unit. Assume the folowing money market rates:

U.S. Singapore Deposit rate

8% 5% Borowing rate 9 6

Gvien this information and showing and explaining al workings, determine whether a money market hedge, a curency options hedge or an unhedged strategy would be most appropriate for Baton Rouge ot hedge its payables position.