CASE 4 EXPORT (20 marks) A business based in New Zealand has exported goods to Canada and is due to receive a payment of CAD 10000 in three months. The spot exchange rate and annualised three-month money market rates are: 1 Canadian dollar trades at NZD 1.076 \begin{tabular}{|l|l|} \hline 3-month New Zealand money market interest rate: & 2.83% \\ \hline 3-month Canadian money market interest rate: & 1.17% \\ \hline \end{tabular} a) Explain the exchange rate risk confronting the New Zealand company. ( 2 marks) b) Explain the terms of a money market hedge that the New Zealand company can undertake to fix the exchange rate on the CAD 10000 . Specify the fixed forward exchange rate offered by the hedge. (10 marks) c) Assume that the actual spot rate after three months was NZD1.1200. Explain whether the forward rate worked in the company' s favour and assess whether it was right to enter the orward exchange. (8 marks)