An Australian exporter WA Co. will receive 5.14 million Chinese yuan (CNY) from a Chinese importer Sing Tao in one year. WA Co. analyses the different hedging strategies (forward, money market and options) using the market information in the following Table 1 to minimise its exchange rate risk for the Australian dollar (A$) cash flow.

TABLE 1 For Chinese yuan (CNY) Spot rate A$0.4619/CNY One-year forward rate A$0.5500/CNY One-year CNY deposit and borrowing rate 8.20% One-year call options Exercise price = A$0.56 Premium = A$0.04 One-year put options Exercise price = A$0.61 Premium = A$0.05 For Australian dollar (A$) Spot rate CNY3.4273/A$ One-year forward rate CNY2.0280/A$ One-year A$ deposit and borrowing rate 4.56% One-year call options Exercise price = CNY1.70 Premium = CNY0.18 One-year put options Exercise price = CNY2.39 Premium = CNYO.12