4. Global plc is considering hedging against exchange rate fluctuations between A$ and . The following transactions are expected in the next months. Calculate the expected receipts if the forward market is used.

Three month: Expected payment of A$565,000 Six months: Expected receipt of A$ 425,000

Three month forward rate (A$ per ): 1.9872 0.0013

Six month forward rate (A$ per ): 2.146 0.0014 5.

5. TZR plc has used a foreign supplier for the first time and must pay $250,000 to the supplier in six months time. The financial manager is concerned that the cost of these supplies may rise in terms and has decided to hedge the currency risk of this account payable (TZR has no excess cash at the moment). The following information has been provided by the companys bank:

Spot rate ($ per ): 1998 0002

Six months forward rate ($ per ): 1979 0004

Money market rates available to TZR: Borrowing Deposit

One year interest rates: 61% 54%

One year dollar interest rates: 40% 35%

Evaluate whether a money market hedge, a forward market hedge or a lead payment should be used to hedge the foreign account payable.