A Singapore listed company, Asian Meat Distributors Ltd. (AML) buys lamb from a New Zealand listed company, New Zealand Farmers Exports Ltd. (NZFE), for NZ$1,000,000 on 01 July 2021. NZFE expects AML to settle in NZ$. The exchange rate on 1 July 2021 is as follows: NZ$1= SG$0.95 or SG$1=NZ$1.05.

(Note: Round off all calculations to 2 decimal points.)

REQUIRED:

(a) Assume that on 30 September 2021, the SGD has appreciated to NZ$1=SG$0.80 or SG$1 =NZ$1.25. What is the gain or loss to AML if it settles on 30 September 2021?

 

(b) Assume that the rate of SGD has depreciated to NZ$1= SG$1.05 or SG$1 = NZ$0.95 on 30 September 2020. What is the gain or loss to AML if it settles on 30 September 2021?

 

(c) Assume AML purchases a Call Option on 1 July 2021 to pay in 90 days (i.e., on 30 September 2021) at NZ$1 = SG$0.95 or SG$1=NZ$1.05 with a premium of SG$10,000. At 90 days the NZ$ has strengthened and the spot rate is NZ$1=SG$1.18 or SG$1=NZ$0.85. Will AML exercise the option? Why/Why not? What is the amount that AML pays at the 90 days settlement date?

Answer rating: 100% (QA)

AMLs Foreign Exchange Transaction Analysis Assumptions AML buys NZ1000000 worth of lamb from NZFE Or... View the full answer