Problem 4 - Hedging Alternatives on Payables (20 marks) Clairaise Co., a U.S. firm, plans to use a money market hedge to hedge its payment of 3 million Singapore dollars for Singapore goods in 1 year. The U.S. interest rate is 5 percent, while the Singapore interest rate is 12 percent. The spot rate of the Singapore dollar is $.73, while the 1-year forward rate is $.78. 1. Determine the amount of U.S. dollars needed in 1 year if a money market hedge is used. (8 marks) 2. Using the information in the previous question, would Clairaise Co. be better off hedging the payables with a money market hedge or with a forward hedge? (6 marks) 3. Clairaise Co., also considers hedging its payables by currency option. Assume option with an exercise price of $ 0.72 and a premium of $ 0.02 and an expiration date of 1 year from now (when the payables are due): (6 marks) a) Which type of option should the firm enter? b) At what spot rate (at expiration date) would the firm exercise the options? c) Determine the total costs of hedging if the firm exercise the option