Considering purchasing a singapore-based startup

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Your father, a Canadian businessman, is considering purchasing a Singapore-based startup, for a total cost of SGD 50 million. If the deal took place, it would require him to pay this amount in one month from today. Your father is concerned about the currency risk of this potential deal. He has asked you to discuss possible hedging alternatives. Specifically, he wish to consider purchasing an option with strike price equal to 0.9250.

FX Option Markets:

SGD Call / CAD Put: 1 month K = 0.9250
Premium (CAD): 0.0076

SGD Put / CAD Call: 1 month K = 0.9250
Premium (CAD): 0.0144

Please state which option contract (SGD call / CAD put or SGD put / CAD call) your father would purchase if he wants to hedge his currency risk for this transaction. Briefly explain your answer and support it with relevant sources.

Reference no: EM132516166

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