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Problem: Assume that Chicken Inc. expects to receive S$1,000,000 in one year. The existing spot rate of the Singapore dollar is $.60. The one-year forward rate of the Singapore dollar is $.63. Chicken Inc. created a probability distribution for the future spot rate in one year as follows:

Future Spot Rate                 Probability

$.59                                   20%

.63                                     50

.67                                     30

Given this information, determine whether a forward hedge or an unhedged strategy is best for Chicken Inc. Show your calculations for a forward hedge and the expected amount if Chicken Inc does not hedge and discuss which is the better option and why. Please show steps how you get an answer and please be clear in your explanation.

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