Hello, if you have any need, please feel free to consult us, this is my wechat: wx91due

BHMH2122 International Finance

Semester ONE, 2024/2025

Assignment TWO

Instruction to students:

1.   This assignment should be completed in hand written individually and neatly.

2.   Marks will be given to equations and workings.

3.   Plagiarism will be treated seriously. Marks will be reduced for assignments that have

been found wholly or partly involved in plagiarism (no matter these assignments are from the original authors or from the plagiarists).

4.   Answer should be corrected to whole figures. Otherwise, 2 marks will be deducted from the overall marks.

5.   A4 size paper MUST be used. Otherwise, 1 mark will be deducted.

6. Words limit: Each essay type part cannot be answered by more than 100 words. Words count must be stated. Otherwise, 1 mark each will be deducted.

7.   Submission deadline: 10:00, 18 November 2024 (Monday) and put into my pigeon hole WK-S13F-014 at 13/F, South Tower. Late submission will have One-third ofyour marks deduction each calendar day. Cut-off time is 10:00 every day.

8.   State your name, student number and tutorial group on the front page of your assignment. Otherwise, 2 marks will be deducted.

9.  No assignment paper and cover are required when submitted.

10. Total: ONE Question with five parts (40 marks)

IBT Ltd

Assume that IBT Ltd (“IBT”), a US company, expects to receive S$450,000 in four months. The existing spot rate of the Singapore dollar is $0.6180. The 4-month forward rate of the Singapore dollar is $0.6210. The company created a probability distribution for the future spot rate in four months as follows:

Future Spot Rate              Probability

$0.6150                               30%

$0.6200                                50

$0.6250                                20

Below is the current market information about 4-months put and call options. Assume that

Premium per unit

The current money market interest rates per annum are as follows:

U.S. 9.0% - 11.0%

Singapore 5.0% - 6.0%

Required:

(All answers are expressed in whole figures, i.e. integer.) Show ALL workings.

a.   Determine the amount to be received by using the forward hedge based on the information given.               (4 marks)

b.   Determine the amount to be received by using the money market hedge based on the information given. Suggest which one should be selected based on part a.         ( 14 marks)

c.   Identify which option that IBT should choose with brief justification.             (12 marks)

d.   Suggest which hedge should be selected based on part b and c.                     (10 marks)

e.   Comparing the most appropriate hedge to an unhedged strategy, and suggest whether IBT should hedge its position.         (10 mark)