Question
Answer both parts [i] and [ii]. Parts [i] and [ii] are independent of each other. [i] Assume that you are a Malaysian importer of Australian
Answer both parts [i] and [ii]. Parts [i] and [ii] are independent of each other. [i] Assume that you are a Malaysian importer of Australian mutton. Initially, the original price of Australian mutton exported to Malaysia is 4000 Australian dollars (AUD) per tonne and the original exchange rate is 4.4 Malaysian ringgit (MYR) per AUD. If the MYR subsequently appreciates 10% and you adjust the price of Australian mutton in MYR to reflect a 40% exchange rate pass-through, what is the new price of Australian mutton in MYR? Explain and show your working clearly and completely. [ii] Assume that you are a currency trader of forward exchange contracts in France. You observe the following spot and forward quotes for the United States dollar (USD) against the Euro (EUR):
Spot rate (USD per EUR) USD/EUR 1.1760
3-month forward rate (USD per EUR) USD/EUR 1.1804
6-month forward rate (USD per EUR) USD/EUR 1.1827
12-month forward rate (USD per EUR) USD/EUR 1.1877
What are the forward premiums or discounts on the EUR? Explain and show your working clearly and completely. Give your final answers in annual percentage terms.
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Business Analysis And Valuation Using Financial Statements Text And Cases
Authors: Krishna G. Palepu, Paul M. Healy, Victor L Bernard
3rd Edition
0324118945, 9780324118940
