Answered: Sonic Master Sendirian Berhad uses…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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Sonic Master Sendirian Berhad uses Singapore Dollars (SGD) as the main currency as a transaction whereas Keep Calm Sendirian Berhad is using Australian Dollars (AUD). In 4 years, payment of SGD 3,400,101 by Sonic Master Sendirian Berhad has to be made to Keep Calm Sendirian Berhad. Exchange rate fluctuations between the SGD and AUD causes the company to fix it's payable and receivable in AUD. The annual interest rates are 6% and 8% for AUD and SGD respectively. The spot exchange rate is 1.86 units of SGD per 1 unit of AUD. Determine the 360-day forward rate by using a money market hedge:

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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