Q. The spot exchange rate between Australia and Singapore is AUD 1.00 = SGD 0.98. Interest rates (per annum) in Australia and Singapore are 4% and 2% respectively (continuously compounded).

What is the fair forward price for a contract expiring in 8 months time? That is, AUD 1.00 = SGD __?

Round your answers to 4 decimal places or you will be incorrect.

Q2,

XYZ share price is currently $20. You are considering two possible investment strategies to profit from a predicted fall in XYZ share price: (i) short sell 60 shares at the spot price, or (ii) enter a long put option (quoted at $1) which allows you to sell 100 shares at a strike price of $18.

Calculate the share price at which the two strategies generate the same net profit.

Select one:

$18.50

Impossible to determine without further information

$15.00

$12.50