Question 2: Hedging Techniques (Compulsory Question) A. Based on the following information, calculate the associated amount using forward, money market and option hedging strategies and select the appropriate strategy. (7.5 Marks) TPLink Inc. is a Singaporean company. It needs $1 million in one year to settle an account payable. The existing spot rate of the Singapore dollar is $0.50. The one-year forward rate of the Singapore dollar currently exhibits a 4% forward discount. TPlink created a probability distribution for the future spot rate in one year as follows: Future Spot Rate Probability $0.57 30% $0.53 $0.51 50% 20% - Mini X 1e5c x Wee X Can y Micrx Mic 23d46f14901d14de26c1bbf6108b8c24c4?response-content-disposition=1 Question 2: Hedging Techniques (Compulsory Question) A. Based on the following information, calculate the associated amount using forward, money market and option hedging strategies and select the appropriate strategy. (7.5 Marks) TPlink Inc. is a Singaporean company. It needs $1 million in one year to settle an account payable. The existing spot rate of the Singapore dollar is $0.50. The one-year forward rate of the Singapore dollar currently exhibits a 4% forward discount. TPlink created a probability distribution for the future spot rate in one year as follows: Future Spot Rate Probability $0.57 30% $0.53 $0.51 Assume that one-year call options on Singapore dollars are available, with an exercise price of $0.53 and a premium of $0.04 per unit. One-year put options on Singapore dollars are available with an exercise price of $0.50 and a premium of $0.03 per unit. The following money market rates are avTilable: U.S. Singapore Borrowing rate 9% 6% Investment rate 8% 5% 50% 20% B. Do you think, TPLink will be better off without any hedging? Yes or no? Show calculations for unhedged scenario and offer opinion about your standing. (2.5 Marks) PART 1 Theoretical Concepts