Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An Australian MNC imported equipment from its US supplier totaling USD4 million and the payable is due in one year's time. Both businesses have a

image text in transcribed
An Australian MNC imported equipment from its US supplier totaling USD4 million and the payable is due in one year's time. Both businesses have a long-standing business relationship with each other that extends to currency risk sharing on transactions involving both parties. The terms of the currency risk sharing contract are the following: - Base rate: AUD0.665/USD - Neutral zone: AUD0.657/USD to AUD0.673/USD - The current risk sharing policy between both parties is for the importer to bear 50% of the exchange rate risk. What is the currency risk adjusted exchange rate that will prevail under the agreement if the spot rate at the due date of the payable is AUD0.695/USD? a. AUD0.6870/USD b. AUD0.6650/USD c. None of the options in this question d. AUD0.6760/USD e. AUD0.6540/USD How much does the importer stand to avoid as a loss in AUD had there been no currency risk sharing arrangement? a. AUD120,000 b. AUD32,000 c. AUD76,000 d. AUD164,000

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 Analysis And Modeling Using Excel And VBA

Authors: Chandan Sengupta

2nd Edition

047027560X, 978-0470275603

More Books

Students also viewed these Finance questions