Question
An Australian organization has a 40,000,000 account receivable from a Japanese customer in 3 months. The current Japanese yen ()/Australian Dollar (A$) spot exchange rate
An Australian organization has a 40,000,000 account receivable from a Japanese customer in 3 months. The current Japanese yen ()/Australian Dollar (A$) spot exchange rate is 87.35/A$. The Australian organization expects the spot rate in 3 months to be 91.45/A$. The 3-month forward exchange rate is 89.50/A$. The Australian Dollar (A$) 3-month borrowing rate is 4.00% per annum and the Australian Dollar (A$) 3-month investment rate is 6.00% per annum. The Japanese yen () 3-month borrowing rate is 8.00% per annum and the Japanese yen () 3-month investment rate is 4.00% per annum. The organizations weighted average cost of capital is 10% per annum. The organization is considering three hedge positions: remaining unhedged, forward market hedge and money market hedge. Which of these hedge positions should the organization adopt?
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