The existing spot rate of the Singapore dollar is SGD/USD = 0.752.The 3-month forward rate of the Singapore dollar is SGD/USD = 0.754.The probability distribution of the future spot rate in 3 months is forecasted as follows:

FutureSpotRate SGD/USDProbability

0.73620%

0.75150

0.76830

The money market interest rates are quoted in Annual Percentage Rate as below:

U.S.Singapore

Depositrate:0.82%1.30%

Borrowingrate:3.255.25

A 3-month put option on Singapore dollars is available, with an exercise price of SGD/USD = 0.752 and a premium of $.03 per unit. A 3-month call option on Singapore dollars is available with an exercise price of SGD/USD = 0.762 and a premium of $.01 per unit.

1. Assume that ABC Co. will need topay2 million Singapore dollars in 3 months.Given the above relevant information, determine whether a forward hedge, money market hedge or a currency options hedge would be most appropriate.Then compare the most appropriate hedge to an unhedged strategy and decide whether ABC Co. should hedge its receivables position. Please provide a detailed explanation of your answers.
2. Assume that XYZ Inc. expects toreceive5 million Singapore dollars in 3 months.Given the above relevant information, determine whether a forward hedge, a money market hedge or a currency options hedge would be most appropriate.Then, compare the most appropriate hedge to an unhedged strategy, and decide whether XYZ Inc. should hedge its payables position. Please provide a detailed explanation of your answers.