How much alfred saves, assuming that the spot rate

Reference no: EM133368671

Question: Alfred Yeo is an importer of European Cars into Singapore. He has recently entered a contract with a German exporter to import Euro 25 million worth of vehicles for his clients based in Singapore. Alfred has to make the payment in 120 days - when the cars will be supplied. There is speculation that the Euro will appreciate in 120 days by 1.25% The exchange rate today is Spoto EUR/SGD = 1.38

a) To hedge himself, Alfred enters into a Forward Contract. Work out how much Alfred saves, assuming that the spot rate at 120 days is 1.25% higher.

b) What if the Euro actually depreciates by 1.75% at Day 120? What would Alfred's expense situation be, assuming he went ahead and hedged with F120 EUR/SGD = 1.38?

Reference no: EM133368671

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