Question

Hopkins Corporation has a subsidiary located in Singapore. Next year, the Singapore subsidiary is expected to generate income of S$2,000,000. Hopkins decides to hedge its translation exposure using a forward contract. The 360-day forward rate for the Singapore dollar is $0.56. If the Singapore dollar ________ by $0.03, Hopkins will have realized a ________ of $________.

Answer 1

Hopkins Corporation has a subsidiary located in Singapore. Next year, the Singapore subsidiary is expected to generate income of S$2,000,000. Hopkins decides to hedge its translation exposure using a forward contract. The 360-day forward rate for the Singapore dollar is $0.56. If the Singapore dollar depreciates by $0.03, Hopkins will have realized a gain of $60000.

Step-by-step explanation:

Since the exposure has been hedged through forward contract, any appreciation is a loss and any depreciation is a gain

Amount = 2,000,000*0.03 = 60,000