Explanation:
Hedged position:
$0.80 CAD/SGD
$2,500,000 SGD × $0.80 CAD/SGD = $2,000,000 CAD
Unhedged position:
$2,500,000 × $0.73 CAD/SGD = $1,825,000 CAD
(Book 3, Module 30.2, LO 30.f)
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Question 92
A Canadian-based tire company is due a $2,500,000 SGD payment from its Singapore-based distributor in two months. The Canadian firm hedges the exchange rate risk using a forward contract priced at $0.80 CAD per SGD. If the Singapore dollar depreciates over the next two months to a spot rate of $0.73 CAD per SGD, how much more or less will the Canadian-based tire firm receive in Canadian dollars by hedging, versus an unhedged position?
A
$175,000 CAD more.
B
$175,000 CAD less.
C
$70,000 CAD more.
D
$29,167 SGD less.
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