Fixit Corp. is a Singapore based manufacturer of semiconductor and has several branch offices in Southeast Asia. Fixit exports USD800,000 worth of chips to a customer in Chicago and has allowed a six month credit terms. The Finance Manager is considering which hedging technique to use that would benefit the company most given that the company has no cash surplus and the level of gearing is below industry average.

The following information given:

Spot rate (SGD/USD)                        1.3700 -1.3810

Six month forward rate                     180 -100 basis points

Six month SGD interest rate              4.40% - 5.90% p.a

Six month USD interest rate             1.60% -2.40% p.a

Six month call option on USD           1% premium : strike SGD1.42200/USD

Six month put option on USD           2% premium; strike SGD 1.41000/USD

Required:

 

Calculate the receipt in Singapore Dollar (SGD) if the following hedging techniques are used:

(a) Forward

(b)  Money market

(c)  Option

(d)  Evaluate which is the best hedging method for Fixit Corp. 

Answer rating: 100% (QA)

a Forward The sixmonth forward rate is 180100 basis points which means the forward rate is 137 001 136 SGDUSD Since Fixit is selling USD800000 the amo... View the full answer