Question

a. A Canadian based tire company is due a 2,500,000 SGD payment from its Singapore based...

a. A Canadian based tire company is due a 2,500,000 SGD payment from its Singapore based distributor in 2 months. The Canadian firm hedges the exchange rate risk using a forward contract priced at 0.80 CAD/SGD. If the Singapore dollar depreciates over the next 2 months to a spot rate of 0.73 CAD/SGD, how much more or less will the Canadian-based tire firm receive in Canadian dollars by hedging versus an unhedged position ?

b. Suppose the current exchange rate US$/Swiss Franc is 1.02 dollar/franc. What is the 7 month forward exchange rate US$/Swiss Franc assuming a continuously compounded Swiss risk free rate of 2% and a continuously compounded U.S. risk-free rate of 1%?

c. Is there any risk left for a U.S. investor who hedges using the forward contract described in the previous point?

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