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To receive credits, you have to show the detailed procedure that take you to the...

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Finance

To receive credits, you have to show the detailed procedure that take you to the partial results and to the conclusion.

Apple, Inc. expects to receive S$1,500,000 in 1 year. The existing spot rate of the Singapore dollar is $0.64. The 1 year forward rate of the Singapore dollar is $0.66. Apple created a probability distribution for the future spot rate in 1 year as follows:

Future Spot Rate

Probability

$0.65

30%

$0.67

40

$0.71

30

Assume that 1-year put options on Singapore dollars are available, with an exercise price of $0.67 and a premium of $0.03 per unit. Assume the following money market rates:

U.S.

Singapore

Deposit rate

9%

6%

Borrowing rate

10

7

Given this 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 Apple should hedge its receivables position.

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