Please explain with simple steps and in depth. Thankyou QUESTION 1 (a) Assume the following...
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Please explain with simple steps and in depth. Thankyou
QUESTION 1 (a) Assume the following information: 30-day Singapore interest rate = 4% 30-day Malaysian interest rate = 3% 30-day forward rate of Malaysian ringgit = SGD0.350 Spot rate of Malaysian ringgit = SGD0.355 Assume that Tiger Ltd in Singapore will need RM500,000 in 30 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.
(b) Assume the following information: You have $1,000,000 to invest Current spot rate of pound = $1.60 90 day forward rate of pound = $1.57 3 month deposit rate in U.S. = 3% 3 month deposit rate in U.K. = 4% If you use covered interest arbitrage for a 90 day investment, what will be the amount of U.S. dollars you will have after 90 days?
(c) Assume the bid rate of a Singapore dollar is $.40 while the ask rate is $.41 at Bank A. Assume the bid rate of a Singapore dollar is $.42 while the ask rate is $.425 at Bank B. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
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