Compare the most appropriate hedge to an unhedged strategy

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Assume that Jaffrey Co. expects to receive S$400,000 in one year. The existing spot rate of the Singapore dollar is $0.62. The one-year forward rate of the Singapore dollar is $0.60. the future spot rate in one year is expected to be $0.63 Assume that one-year put options on Singapore dollars are available, with an exercise price of $0.63 and a premium of $0.02 per unit. One-year call options on Singapore dollars are available with an exercise price of $.60 and a premium of $.04 per unit. Assume the following money market rates: Borrowing rate of Singaporean dollar is 5% and deposit rate of US dollar is 7%. A. Determine whether a forward hedge, money market hedge, or a currency options hedge would be most appropriate? B. Compare the most appropriate hedge to an unhedged strategy, and decide whether Carbondale should hedge its receivables position?

Reference no: EM13280533

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