Which currency would the company have wanted to sell

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Reference no: EM133394136

Suppose that at the end of 2020, the Singaporean company in the previous question had considered hedging its foreign exchange risk for the following 90 days (i.e., for the three months following the end of the period covered by Chart 1-from Jan 1 - Mar 30, 2021). The company checked with its bank on Dec 31, 2020 and found that the 90-day forward rate was just equal to the Dec 31 spot rate shown in Chart 1: AUD 0.98 = SGD 1.00.

a.) Which currency would the company have wanted to sell forward to hedge its foreign exchange risk? Explain your reasoning.

b.) Would the company have been more likely to enter into a forward contract if it had expected the spot rate to continue moving in the same direction as it had been during the previous nine months (the Apr 1 - Dec 31, 2020 period shown in Chart 1), or if it had expected the trend to reverse and the rate to move in the opposite direction. Explain your reasoning.

Reference no: EM133394136

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