Question
d) If Sunset locks in a forward hedge and the actual spot rate in 90 days time turns out to be the expected spot rate,
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d) If Sunset locks in a forward hedge and the actual spot rate in 90 days time turns out to be the expected spot rate, would this result in a foreign exchange gain or loss? What will be the amount of the gain or loss?
(3 marks)
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e) If Sunset chooses to hedge its transaction exposure in the option market, what action will it take?
(2 marks)
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f) If Sunset decides to hedge its position using the option suggested in part e), and the actual spot rate in 90 days time turns out to be the expected spot rate, should Sunset exercise the option? What will be the amount of the gross profit and net profit?
(3 marks)
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g) If Sunset decides to hedge its position using the option suggested in part e), and the actual spot rate in 90 days time turns out to be A$1.53/, should Sunset exercise the option? What will be the amount of the gross profit and net profit?
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