Probability distribution for the future spot rate

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Assume that Houston co expects to receive S$1000000 in one year. The existing spot rate of the Singapore dollar is $.60. the one year forward rate of the Singapore dollar is $.62. Houston created a probability distribution for the future spot rate in one year as follows

Future Spot Rate / Probability

$.60 / 20%
$.63 / 50%
$.67% / 30%

Assume the following money market rates

USA / SINGAPORE
Deposit rate = 2% / 4%
Borrowing rate = 4 / 7

Given this information determine whether a forward hedge or money market hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy, and decide whether Houston should hedge its receivables position or not.

Reference no: EM132516206

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