Parth Sheth 1/22/14

Case A
Sr No 1 2 3 Future spot rate $ 0.61 $ 0.63 $ 0.67 Forward rate Of Singapore $ 0.62 $ 310,000 $ 310,000 $ 310,000 Currency Put option $ 500,000 $ 295,000 $ 295,000 $ 315,000 Currency Unhedge $ 500,000 $ 305,000 $ 315,000 $ 335,000

Probability 20 % 50% 30%

While comparing between Forward contract and currency hedge, the probability receiving more is in forward rate and that is abou70% (Adding probability of Sr 1 & 2) as compared to that of currency hedge which is only 30% (Probability of Sr 3). So Forward rate contract will be most appropriate. while comparing between forward contract and unhedge contract , the probability of receiving is more in unhedge contract that is about 80 %(Adding probability of Sr 2 & 3) as compared to that of forward contract which is only 20% (Probability of Sr 3). So unhedhe currency contract is most appropriate. Overall Carbondale Co should not hedge while receivable position

Case B
Sr No 1 2 3 Future spot rate $ 0.61 $ 0.63 $ 0.67 Forward rate Of Singapore $ 0.62 $ 620,000 $ 620,000 $ 620,000 Currency Call Option $ 10,00,000 $ 630,000 $ 630,000 $ 630,000 Currency Unhedge $ 10,00,000 $ 610,000 $ 630,000 $ 670,000

Probability 20 % 50% 30%

While comparing between Forward contract and currency hedge, the probability of paying lessis inforward rate is 100% (Adding probability of Sr 1,2&3) . So Forward rate contract will be most appropriate. while comparing between forward contract and unhedge contract , the probability of paying is less in forward contract that is about 80 %(Adding probability of Sr 2 & 3) as compared to that of unhedge contract which is only 20% (Probability of Sr 3). So forward currency contract is most appropriate. Overall Baton Rouge should not go with the hedge contract. But should enter in to forward contract.

Parth Sheth 1/22/14 Definitions

Forward contract: when there is a future transection between two or more parties and the price of the commodities are decided today to get secured from future exchange risk is known as forward contract. Hedged transection: It is the process to reduce the risk of any investor. A specific rate is been determined by the investor and on that rate investor will decide whether to enter ot not in the transaction. Unhedged transaction: It is a non-hedge transection. Where investors are not secured from risk and directly deal with the price coted. Call option: It is the option at which the investor will purchase the commodity. In call option that transection are selected which have less amount payable. Put option: It is the option where the investor sells the commodity. In put option that transection are selected which can receive high payment.