ALH Ltd is an Australian company that sells machinery parts. On 3 March 2020, ALH sells 250 000 of inventory to a French company (spot rate A$1 = 0.52). The sale is denominated in Euros and will be settled in Euros on 3 May 2020 (spot rate A$1 = 0.54). The management of ALH Ltd is concerned about adverse exchange rate movements and enters into a forward rate agreement with JLH Bank. The agreement requires JLH Bank to buy 250 000 from ALH on 3 May 2020. The forward rate specified in the contract is A$1 = 0.55.

ALH Ltd has designated the hedging arrangement as a hedge for the purposes ofAASB 9.

Required

Explain how the forward rate agreement with JLH Bank serves to reduce the exposure of ALH Ltd to foreign currency exchange rates. What does JLH Bank charge ALH Ltd for the reduction in risk?