Question
Singapore Airlines just signed a contract to buy 10 Boeing 787 to be delivered in 1 year. The contract value is SGD 3.5 billion. The
Singapore Airlines just signed a contract to buy 10 Boeing 787 to be delivered in 1 year. The contract value is SGD 3.5 billion. The interest rates are the US is 5% and 4% in Singapore. The spot rate is 1.353 SGD per dollar and 0.739097 USD per SGD.
(a) Assume the interest rates and spot rate are the same, show how Boeing can hedge with in the money market.
(b) Find the no arbitrage forward rate for USD/SGD and assumes Boeing enters into a forward position (would it go long or short?). What is Boeings gains/losses in one year if the spot rate turns out to be 0.7285 0r 0.7735?
(c) Suppose that there are one-year USD/SGD call options with strike price of $0.747 for $0.015 premium and put option with strike price of $0.747 for $0.018 premium. What option should Boeing buy? Whats Boeings gains/losses if the spot rate turns out to be $0.7285 or $0.7735 in one year?
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