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Thompson Company has 500,000 Singaporean dollars (SGD) in receivables due in one year. They are concerned that that the Singaporean dollar will next year. The
Thompson Company has 500,000 Singaporean dollars (SGD) in receivables due in one year. They are concerned that that the Singaporean dollar will next year. The CFO at Thompson Company would like to be 99% confident that the maximum loss on these receivables due to currency exchange risk does not exceed a potential loss of $35,000. Otherwise, she would seek an alternative hedging strategy. Based on the information below, please show the maximum loss potential for these receivables, in USD. Should the CFO pursue an alternative hedging strategy? Historical annual standard deviation of the SGD/USD =4% Appropriate confidence level =2.33 standard deviations. 2% expected change in the currency Current spot rate SGD/USD=$0.60
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