Comparison of Techniques for Hedging Receivables. Assume that Carbondale Co. expects to receive S$500,000 in one year.  The existing spot rate of the Singapore dollar is $.60.  The one?year forward rate of the Singapore dollar is $.62.  Carbondale created a probability distribution for the future spot rate in one year as follows: Future Spot Rate Probability                                $.58                                                         20%                                  .63                                                         50                                  .67                                                         30            Assume that one?year put options on Singapore dollars are available, with an exercise price of $.63 and a premium of $.04 per unit. One?year call options on Singapore dollars are available with an exercise price of $.60 and a premium of $.03 per unit.  Assume the following money market rates: U.S. Singapore                  Deposit rate                         7%                         4%                  Borrowing rate                    8                           5            Given this information, determine whether a forward hedge, money market hedge, or a currency options hedge would be most appropriate.  Then compare the most appropriate hedge to an unhedged strategy, and decide whether Carbondale should hedge its receivables position.      ANSWER: Forward hedge Money market hedge  Option hedge Possible Spot Rate Option Premium per Unit Exercise Yes or No? Amount Received per Unit (also accounting for premium) Total Amount Received for S$500,000 Probability Unhedged Strategy Possible Spot Rate Total Amount Received for S$500,000 Probability Assume that Baton Rouge, Inc. expects to need S$1 million in one year.  Using any relevant information in part (a) of this question, determine whether a forward hedge, a money market hedge, or a currency options hedge would be most appropriate.  Then, compare the most appropriate hedge to an unhedged strategy, and decide whether Baton Rouge should hedge its payables position.      ANSWER: Forward hedge Money market hedge Option hedge Amount Paid                Total      Option                                                       per Unit                 Amount      Possible       Premium      Exercise           (including                Paid for                Spot Rate per Unit Option? the premium) S$1,000,000 Probability Unhedged Strategy            Possible                                                 Total Spot Rate                                       Amount Paid                   Probability

While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar. In a critical essay, indicate the main considerations Saudi Arabia faces from a currency perspective (e.g., currency values, interest rates, inflation, and trade issues) that ensue given two scenarios: The first scenario is a dramatically declining world oil price. The second scenario is a dramatically increasing world oil price.