You are a finance officer at a U.S. company. Your company expects to receive SGD 500,000 in one year. The spot exchange rate is USD/SGD 0.60. The one-year swap rate is +0.02. A research report estimates that the exchange rate in one year will be: Future Spot Rate USD/SGD 0.61 USD/SGD 0.63 USD/SGD 0.67 Probability 20% 50% 30% The money market rates: Singapore Deposit Rate Borrowing Rate U.S. 8% p.a. 9% p.a. 5% p.a. 6% p.a. Given this information, your CFO is interested to know whether a forward hedge or a money market hedge is most appropriate. (a) What is the one-year USD/SGD forward rate? (2 marks) (b) Describe how to set up the forward hedge. What will be the dollar value of the exposure in one year? (2 marks) (c) Describe how to set up the money market hedge. What will be the dollar value of the exposure in one year? (4 marks) (d) Compare your results in (b) and (c), which hedging method is more superior? (2 marks) (e) Your CFO wants to know the exposure of an unhedged strategy. Base on your analysis, what will be your advice to your CFO? (7 marks) (1) Your CFO suggests that the company should insist on all its customers' pay in USD. Is it possible to eliminate the exchange rate exposure? Why