Forward Hedge
Spot rate US$ 0.74 Forward rate US$ 0.76 US $ received = 800,000*0.76 = US$ 608,000. If Novena Ltd. takes the forward contract they will exchange the Singapore dollars at the agreed forward rate of US$ 0.76 per Singapore dollar. Under the forward hedge Novena Ltd. will receive US$ 608,000.
Money market Hedge
Step I Borrow in foreign currency 800,000/ (1.07) = SGD$ 747,663.55 In the first step Novena Ltd. Should borrow in Singapore dollars. The amount of money borrowed should be the present value of the expected receipt discounted at Singapore borrowing rate. The present value of SGD$ 800, ...
