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Assume the following information: Australian interest rate = 8% p.a. for 2 years British interest rate = 9% p.a. for 2 years 2-year forward rate
Assume the following information:
Australian interest rate = 8% p.a. for 2 years
British interest rate = 9% p.a. for 2 years
2-year forward rate = 1.5 AUD/GBP
Spot rate = 1.48 AUD/GBP
Assume that borrowing and lending rate are the same. An Australian company will receive 400,000 in 2 years. How can it hedge by actual FX forward? Calculate the CF receipt in AUD under actual forward hedge.
How can it hedge by synthetic FX forward? Calculate the CF receipt in AUD under money market hedge.
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