An Australian company will receive payment of USD$10$ million a year from now. The current spot price for the USD is AUD$1\mathrm{.}50/$USD and the one$-$year forward rate is AUD$1\mathrm{.}45/$USD$.$ The USD annual interest rate is $8\%,$ the AUD annual interest rate is $9\%.$

Which of the following is TRUE?

Question $11$Answer

a$.$

Money market hedge $($borrowing AUD$)$ is better than using the forward contract, granting AUD$14\mathrm{.}86$ million a year from now.

b$.$

Money market hedge $($borrowing USD$)$ is better than using the forward contract, granting AUD$15\mathrm{.}14$ million a year from now.

c$.$

Using the forward contract is better than money market hedge, granting AUD$14\mathrm{.}5$ million a year from now.

d$.$

Money market hedge $($borrowing USD$)$ is better than using the forward contract, granting AUD$14\mathrm{.}86$ million a year from now