Derek was visiting Singapore and decided to go car shopping. He went to a Jaguar car dealer and purchased a Jaguar for S$45,000, payable in 3 months. He has enough cash at his bank in Malaysia to pay his car, which pays 0.35 percent per month, compounding monthly. Currently, the spot exchange rate is RM3.05/S$ and the three-month forward exchange rate is RM3.00/S$. In Singapore, the money market interest rate is 2 percent for a three-month investment. There are TWO (2) alternative ways of paying for his Jaguar. Evaluate each payment method and which is preferred. Justify your answer

Required:

1. Keep the funds at his bank in Malaysia and buy $45,000 forward

2. Buy a certain Singapore dollar amount spot today and invest the amount in Singapore for 3 months so that the maturity value becomes equal to $45,000.