Don't use -f for rm in tests where not needed. Drop /bin/ from /bin/rm.
#!/bin/sh
mkdir a
cd a
hg init
echo a > a
hg add a
hg commit -m test -d '0 0'
# Default operation
hg clone . ../b
cd ../b
cat a
hg verify
# No update
hg clone -U . ../c
cd ../c
cat a 2>/dev/null || echo "a not present"
hg verify
# Default destination
mkdir ../d
cd ../d
hg clone ../a
cd a
hg cat a