Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

how to do 3 and 4 ?Please answer with a complete explanation Assume that US Tech Ltd expects to pay $542,100 in six months. The

how to do 3 and 4 ?Please answer with a complete explanation image text in transcribed
image text in transcribed
Assume that US Tech Ltd expects to pay $542,100 in six months. The existing spot rate of the Singapore dollar is $0.600. The 6-month forward rate of the Singapore dollar is $0.642. The company created a probability distribution for the future spot rate in six months as follows: Assume that 6-month call options on Singapore dollars are available, with an exercise price of $0.630 and a premium of $0.04 per unit. 6-month put options on Singapore dollars are available with an exercise price of $0.600 and a premium of $0.03 per unit. The current money market interest rates per annual are as follows: Required: Given this information, determine the amount in dollars to be paid by: 1. a forward contract and describe the STEPS to be performed clearly. (10 marks) 2. a money market hedge and describe the STEPS to be performed clearly. (20 marks) 3. Identify which option can be used in this transaction and fill up the below table. (14 marks) 4. Comparing the most appropriate hedge to an unhedged strategy, and decide whether US Tech should hedge its payable position. (6 marks) (Total 50 marks) Assume that US Tech Ltd expects to pay $542,100 in six months. The existing spot rate of the Singapore dollar is $0.600. The 6-month forward rate of the Singapore dollar is $0.642. The company created a probability distribution for the future spot rate in six months as follows: Assume that 6-month call options on Singapore dollars are available, with an exercise price of $0.630 and a premium of $0.04 per unit. 6-month put options on Singapore dollars are available with an exercise price of $0.600 and a premium of $0.03 per unit. The current money market interest rates per annual are as follows: Required: Given this information, determine the amount in dollars to be paid by: 1. a forward contract and describe the STEPS to be performed clearly. (10 marks) 2. a money market hedge and describe the STEPS to be performed clearly. (20 marks) 3. Identify which option can be used in this transaction and fill up the below table. (14 marks) 4. Comparing the most appropriate hedge to an unhedged strategy, and decide whether US Tech should hedge its payable position. (6 marks) (Total 50 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions