Please to calculate the problem attached. Thank you. Assume that Baton Rouge, Inc. will...
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Please to calculate the problem attached. Thank you.
Assume that Baton Rouge, Inc. will need S$1 million in one year. The existing spot rate of the Singapore dollar is $0.60. The one year forward rate of the Singapore dollar iS $0.62. The expected probability distribution for the fiiture spot rate in one year as follows: Future Spot Rate $0.61 0.63 0.67 Probability 20% 50 30 Assume that one year put options on Singapore dollars are available, with an exercise price of $0.63 and a premium of $0.04 per unJt. One year call options on Singapore dollars are available with an exercise price of $0.60 and a premium of $0.03 per unit. Assume the following money market rates: Call options are used for payables. U.S. Singapore Deposit rate 8% 5% Borrowing rate 9 6 Given this information and showing and explaining all workings, determine whether a money market hedge, a currency options hedge or an unhedged strategy would be most appropriate for Baton Rouge to hedge its receivables position
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