On 1 April an Australian exporter sells A$10 million of coal to a New Zealand company. The importer is sent an invoice for NZ$11 million payable in six months. The spot rate of exchange between the Australian and New Zealand dollars is NZ$1.1/A$. Required 

(a) If the spot rate of exchange six months later is NZ$1.2/A$ what exchange rate gain or loss will be made by the Australian exporter?

(b) If the spot rate of exchange six months later is NZ$1.05/A$ what exchange rate gain or loss will be made by the Australian exporter? 

(c) A six-month forward is available at NZ$1.09/A$. Show how risk can be reduced using the forward. 

(d) Discuss the relative merits of using forwards and options to hedge forex risk.