Should samuel short or long forward contract

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Reference no: EM131553339

Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the Australian dollar/Singapore dollar (A$/S$) cross-rate. The current spot rate is A$0.8000/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the Australian dollar in the coming 90 days, probably to about A$0.8800/S$.

Peregrine Investments has a credit rating of AA. The LIBOR rate for Australian dollars is 3% and the LIBOR rate for Singapore dollars is 1%. If Peregrine Investments is to borrow funds in Australian dollars or Singapore dollars they will face a spread of +2% above the LIBOR rate.

a) Should Samuel short or long a forward contract for 500,000 Singapore dollars and has 90 days left to maturity?

b) What is Samuel's cost to short or long the forward contract used in a) has a settlement price of A$0.82000/S$ today?

c) What is Samuel's profit or loss if the ending 90 day spot rate is indeed A$0.8800/S$?

Reference no: EM131553339

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