a2 Milk is an Australian company specialising in producing fresh milk and milk formula. The company has its operations in Australia. Therefore, there expenses are generally invoiced in Australian dollars (AUD). However, it has recently imported supplies from New Zealand, and the bill is invoiced in the New Zealand dollars (NZD) for NZD 1,500,000, payable in 6 months' time.Suppose a2 Milk's management is concerned about foreign exchange rate exposure, and would like to hedge this risk. Suppose also that you observe the following quotes in the foreign exchange market:

Currency In USD Per USD

AUD Spot 0.7289 1.3719

1-month forward 0.7280 1.3736

3-month forward 0.7264 1.3767

6-month forward 0.7242 1.3808

NZD Spot 0.6759 1.4795

1-month forward 0.6763 1.4786

3-month forward 0.6785 1.4738

6-month forward 0.6800 1.4706

The banker offers to set up a forward hedge based on the NZD/AUD forward cross-exchange rate implicit in the forward rates against the dollar. Suppose you are a risk manager at a2 Milk. You are required to advise the CEO the following:

2. The foreign exchange rate risk exposure of this transaction?

In answering this question 'What would be the Foreign exchange rate risk exposure of this transaction', what aspects would i need to mention ?