Assume that Gilligan Ltd enters into a contract to buy inventory from an overseas supplier. On 1 February 2023 it acquires the material at a cost of US$500,000 payable in two months time. The exchange rate at the time is A$1 = US$1.15. The actual debt is considered to be a trade payable and is a primary financial instrument. The exchange rate on 1 April 2023 is A$1 = US$1.09.

Required:

(a) As the debt is payable in two months time describe the potential risk to Gilligan Ltd.

(b) Assume that McCoy Ltd is concerned about possible adverse exchange rate movements, what action could the company take?