In: Accounting
The existing spot rate of the Singapore dollar is $.62. The one‑year forward rate of the Singapore dollar is $.61. The probability distribution of the future spot rate in one year is forecasted as follows:
Future Spot Rate Probability
$.60 25%
.63 45
.65 30
Assume that one‑year put options on Singapore dollars are available, with an exercise price of $.64 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.61 and a premium of $.02 per unit. Assume the following money market rates:
U.S. Singapore
Deposit rate 6% 5%
Borrowing rate 8 7