Q6) Comparison of techniques for hedging receivables a) Assume that Carbondale Co. expects to receive 500,000 Singapore dollars in one year. The existing spot rate of the Singapore dollar is A$0.90. The one-year forward rate of the Singapore dollar is A$0.92. Carbondale created a probability distribution for the ?lture spot rate in one year as follows: Future spat rate Prabab?igr A$0.91 20% £050.93 50% A1509? 30% Assume that one-year put options on Singapore dollars are available, with an exercise price of A$0.93 and a premium of A$0.04 per unit. One-year call options on Singapore dollars are available with an exercise price of A$0.90 and a premium of A$0.03 per unit. Assume the following money market rates: Australia Singapore Deposit rate Borrowing rate 2.50% 3.00% Given this information, determine whether a forward hedge, a money market hedge or a currency options hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy, and decide whether Carbondale should hedge its receivables position.

b) Assume that Baton Rouge, Inc. expects to need 1 million Singapore dollars in one year. Using any relevant information in part (a) of this question, determine whether a forward hedge, a money market hedge or a. eturency option hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy and decide whether Baton Rouge should hedge its payables position.

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