Question

Q1 : Assume you are a US exporter with an account receivable denominated in Singapore dollars to be paid to you in one year, in the amount of SGD 762,717. The current spot rate is 0.71 and the forward rate is 0.75 in number of usd for one sgd. what would be the US dollar amount of the hedge receivable using a forward market hedge?

Answer 1

The US exporter has SGD receivable and he is afraid of SGD falling. As a result of the fall his cash inflow will reduce. To hedge himself he needs to sell SGD 762,717 in the forward market.

Exchange Rates are given as follows

USD/SGD = 0.71 (Spot Rate)

This means for 1 SGD we will get 0.71 USD

USD/SGD = 0.75(Forward rate)

This means for 1 SGD we will get 0.75 USD

Therefore US dollar inflow by using the forward market to hedge against the fall of SGD

= 762,717 * 0.75

= 572,037.75

The US exporter will get $572,037.75 for using the forward market hedge.