Intel, a US semiconductor manufacturer, has sold SGD 70 million worth of compute
ID: 2789935 • Letter: I
Question
Intel, a US semiconductor manufacturer, has sold SGD 70 million worth of computer chips to a Singapore company. The payment (in SGD) is due in six (6) months.
Intel is given the following information:
Spot rate = SGD 1.32 / USD
9-month forward rate = SGD 1.35 / USD
Interest rate in Singapore = 2% per year
Interest rate in U.S.A. = 3% per year
Intel’s own forecast suggests that the spot rate 6 months from now is most likely SGD 1.34 / USD.
If the firm uses the forward hedge, how much USD will it need in 6 months?
USD 51,852,000Explanation / Answer
US company has SGD receivable in 6 months, so it needs to sell 6 months SGD Forward to its exposure or buy 6 months USD forward.
6 months Forward rate USD= 1.32*(1.020.5)/(1.030.5)
= SGD1.3135/USD
USD required in 6 months= SGDExposure equivalent to USD i.e., 70000000/1.3135= USD 53292730 or USD 53030000(appx.). Hence the correct option is d.
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