Mark's firm has built up a reserve of SGD 100 million over the years - a percentage from after tax profits. He is keen to use this fund to scan the global FX environment and make prudent and riskless investments that can return a positive profit in less than 12 months. He has received the following information: 

Japanese Yen Money Market Interest Rate = 2 % per annum (or 1% for 180 days) 

USD Money Market Interest Rate = 4 % per annum (or 2% for 180 days) 

S1 = Spot = SGD 1.35 = 1 USD

 S2 = Spot = Yen 106 = 1 USD 

F1801 = Forward rate 180 days down the road = SGD 1.34 = 1 USD 

F1802 = Forward rate 180 days down the road = Yen 104 = 1 USD 

Clearly show your calculations and assumptions for the following: 

1) Assume Mark is willing to invest SGD 100 million for 180 days. What should he do to take advantage of the information? 

2) What is his profit (or loss) in USD? 

3) What is his profit (or loss) in SGD? 4) Mark had funds of SGD 100 million to play with. Assume he does not want to use these funds and is willing to borrow USD in the international market. If he borrows USD 100 million - how would your change?

Answer rating: 100% (QA)

1 To take advantage of the information Mark should execute the following steps a Borrow SGD 100 mill... View the full answer