Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An Australian exporter WA Co . wants to export goods for 5 . 3 6 million Chinese yuan ( CNY ) and receive payment from

An Australian exporter WA Co. wants to export goods for 5.36 million Chinese yuan (CNY) and receive payment from a Chinese importer, Sing Tao, in one year. WA Co. also wants to minimise its exchange rate risk for receiving CNY5.36 by taking the options market hedging strategy.
Calculate the minimum Australian dollar (A$) net proceeds from the options market hedging strategy based on the information in Table 1.(Enter the whole number without sign and symbol).
TABLE 1
For Chinese yuan (CNY)
Spot rate
A$0.3321/CNY
One-year forward rate
A$0.539/CNY
One-year CNY deposit and borrowing rate
7.41%
One-year call options
Exercise price = A$0.56
Premium = A$0.03
One-year put options
Exercise price = A$0.6
Premium = A$0.05
For Australian dollar (A$)
Spot rate
CNY2.9154/A$
One-year forward rate
CNY1.6402/A$
One-year A$ deposit and borrowing rate
4.51%
One-year call options
Exercise price = CNY1.67
Premium = CNY0.19
One-year put options
Exercise price = CNY1.55
Premium = CNY0.13
Do not use AI for answer and clearly state the formulae used.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting The Impact On Decision Makers

Authors: Gary A Porter, Curtis L Norton

7th Edition

1439080526, 9781439080528

More Books

Students also viewed these Finance questions