budget rate is B= 1.4493 AUD / Euro.The budget rate is a benchmark for Mr Goode. An exchange rate below B is acceptable whereas an exchange rate above B will erode the margins of the company and force them to renegotiate contracts with suppliers.

The four (4) month FEC (Foreign Exchange Forward contract) is AUD/EUR0.6910 (spot of 0.6980 less 70 forward points).

1. Assume that the company (Mayer Import) has a payable of Euro15M in 4 months. If they hedge that position with a forward contract, what is the cost of the payable in AUD (after hedging).(5) Is this an acceptable deal when compared to the budget rate? (5)