Assume that Oracle expects to receive S$250,000,000 in one year. The existing spot rate of the
Singapore dollar is $.74. The one-year forward rate of the Singapore dollar is $.76. Oracle
created the following probability distribution for the future spot rate in one year:
Future Spot Rate Probability
$.75 25%
.77 55
.81 20
Assume that one-year put options on Singapore dollars are available, with an exercise price of
$.75 and a premium of $.04 per unit. One-year call options on Singapore dollars are available
with an exercise price of $.74 and a premium of $.03 per unit. Assume the following money
market rates:
U.S. Singapore
Deposit rate 5% 2%
Borrowing rate 6 3
Given this information, determine whether a forward hedge, 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 Oracle should hedge its receivables position.

Answer rating: 100% (QA)

To determine the most appropriate hedge for Oracles receivables position we need to compare the forward hedge money market hedge and currency options ... View the full answer