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 797,253. The current spot rate is 0.71 per sgd. You have decided to hedge using. put option with as exercise price of 0.72 and a premium of 0.02

what would be the hedge US dollar of the receivable if in one year the spot rate is 0.73 use per sgd ?

Answer 1

In this question US exporter hedge the receivable using put option at strike price of 0.72 and premium paid for that is 0.02. But after 1-year spot rate is 0.73 so exporter not exercise the put option as the spot price is higher than strike price.

Now we calculate premium paid = SGD receivable x premium paid = SGD 797,253 x 0.02 = $15,945.06

As the put option not exercise by the exporter so exporter sell the receivable in spot market rate i.e. 0.73 so total $ received at spot rate = SGD receivable x spot rate = SGD 797,253 x 0.73 = $581,994.69

Net amount received = US dollor received - Option premium paid = $581,994.69 - $15,945.06 = $566,049.63