Question
Massona Inc. will need to pay a foreign-denominated short-term debt of SGD 886,000 in 90 days. The spot rate is USD 1.7181/SGD. The 90-day
Massona Inc. will need to pay a foreign-denominated short-term debt of SGD 886,000 in 90 days. The spot rate is USD 1.7181/SGD. The 90-day forward rate for a Singapore dollar (SGD) is 1.9809 U.S. dollars. The call option on SGD has a strike price of USD 2.0361 and a premium of USD 0.06. The put option on SGD has a strike price of USD 2.0146 and a premium of USD 0.08. The company prefers to hedge its transaction exposure using flexible financial instruments. If the spot rate of SGD in 90 days is 1.9069 U.S. dollars, find the net payment the company must pay in USD if it acts rationally.
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Global Investments
Authors: Bruno Solnik, Dennis McLeavey
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