Your firm has a receivable of 500,000 Singapore dollars (SGD) due a year from now Assume: Current SGD/USD spot rate is $0.60 1-year forward rate is $0.62 1-year SGD borrowing rate is 6% 1-year USD deposit/lending rate is 8% Put options on the SGD with a strike price of $0.63 and a one-year expiration date cost $0.04 The SGD spot rate a year from now may be: $0.61 with a 20% chance $0.63 with a 50% chance $0.67 with a 30% chance

a. Estimate the expected cash inflows a year from now under each of the following hedging techniques: a forward contract hedge, a money market hedge, a currency put option hedge, and no hedge. (Hint: Follow the procedure of Example 3 in Chapter 11 slides, and use the Example 4 sheet in test.xlsx from Canvas material)

b. Which technique should you consider pursuing?