Marks firm has built up a reserve of SGD 100 million over the years a percentage from after tax profits. He is keen to use this fund to scan the global FX environment and make prudent and riskless investments that can return a positive profit in less than 12 months. He has received the following information: - Japanese Yen Money Market Interest Rate = 2 % per annum (or 1% for 180 days) USD Money Market Interest Rate = 4 % per annum (or 2% for 180 days) S1 =Spot=SGD1.35=1USD S2 =Spot=Yen106=1USD F1801 = Forward rate 180 days down the road = SGD 1.34 = 1 USD F1802 = Forward rate 180 days down the road = Yen 104 = 1 USD Clearly show your calculations and assumptions for the following: -

1) Assume Mark is willing to invest SGD 100 million for 180 days. What should he do to take advantage of the information?

2) What is his profit (or loss) in USD?

3) What is his profit (or loss) in SGD?

4) Mark had funds of SGD 100 million to play with. Assume he does not want to use these funds and is willing to borrow USD in the international market. If he borrows USD 100 million how would your answer to Q (2) and (3) change