Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the Australian dollar/Singapore dollar (A$/S$) cross-rate. The current spot rate is A$0.8000/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the Australian dollar in the coming 90 days, probably to about A$0.8800/S$.

Peregrine Investments has a credit rating of AA. The LIBOR rate for Australian dollars is 3% and the LIBOR rate for Singapore dollars is 1%. If Peregrine Investments is to borrow funds in Australian dollars or Singapore dollars they will face a spread of +2% above the LIBOR rate.

a) Should Samuel short or long a forward contract for 500,000 Singapore dollars and has 90 days left to maturity? (1 mark)

b) What is Samuel's cost to short or long the forward contract used in a) has a settlement price of A$0.82000/S$ today? (2 marks)

c) What is Samuel's profit or loss if the ending 90 day spot rate is indeed A$0.8800/S$? (2 marks)