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Your U.S. firm does business in Singapore, and expects to receive 30 million Singapore dollars (SGD) exactly 4 months from now. The current bid/ask spot rates are USD $0.7347-$0.7355 per 1 SGD. Your firm’s typical policy is to convert all foreign currencies to USD upon their receipt. You are looking to hedge the firm’s exchange rate risk in this transaction.

You ask your investment bank to give you quotes on forward contracts, with 30 million SGD as the underlying asset of the forward contract. They come back with a quote of 5349. If you enter into this forward contract, how many USD would you have in four months (after selling your SGD)? (10 pts)

You see that 4-month U.S. rates are 0.403% (continuously compounded, annualized, and for both borrowing and/or lending). If the forward rate that you would lock in with this forward contract is the correct forward price, then what is the interest rate in Singapore (also continuously compounded, annualized, and for borrowing and/or lending (10 pts)


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