Aaya Inc., a UK company expects to receive Singapore dollars (S$) 8,00,000, six months from now. The current spot rate quoted by banker of Aaya Inc., is S$ 2.20 per Sterling Pound (£). The rate of interest prevailing in

(b) Evaluation of gain or loss if forward contract entered into Amount to be received in S$ = 8,00,000 Forward Rate (S$/£) = 2.23 (as per solution's table) Pound receipts if forward contract entered = S$ 8,00,000 / 2.23 = £358,744 Scenario 1: £ gains by 4% annualised (Rate will be 2.24 as per solution's table) Spot Rate after 6 months = 2.24 S$/£ Pound receipts without forward contract = S$ 8,00,000 / 2.24 = £357,143 Loss = £358,744 - £357,143 = £1,601 Scenario 2: £ lost by 2% annualised (Rate will be 2.18 as per solution's table) Spot Rate after 6 months = 2.18 S$/£ Pound receipts without forward contract = S$ 8,00,000 / 2.18 = £366,972 Gain = £366,972 - £358,744 = £8,228 Scenario 3: £ remains stable (Rate will be 2.20 as per solution's table) Spot Rate after 6 months = 2.20 S$/£ Pound receipts without forward contract = S$ 8,00,000 / 2.20 = £363,636 Gain = £363,636 - £358,744 = £4,892 Summary Table: Forward Contract Scenario 1: £ gains 4% (Rate 2.24) Scenario 2: £ lost 2% (Rate 2.18) Scenario 3: £ stable (Rate 2.20) Rate (S$/£) 2.23 2.24 2.18 2.20 Pound receipts (£) 358,744 357,143 366,972 363,636 Gain or loss vs. Forward Contract Loss of £1,601 Gain of £8,228 Gain of £4,892