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An Australian exporting company will receive 4m USD in 6 months time from sales. The current spot rate is: AUD / USD 0.7066 / 0.7073.
An Australian exporting company will receive 4m USD in 6 months time from sales. The current spot rate is: AUD / USD 0.7066 / 0.7073. Australian interest rates are currently at 1.5% p.a. and U.S. interest rates are at 0.5% p.a. The net interest rate spread in both countries is 3.5% (read this as the borrowing rates are 3.5% higher than the given investment rates above). Design a money market hedge which will remove the FX risk faced by the company, yet not altering the timing of the payment. Clearly show the AUD cash flow in the future.
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