Financial Globalisation and Risk

Monopoly OZ Health Ltd. Is one of the worlds largest exporter of vegemite, head-quartered in Melbourne, Australia. Suppose an importer based in United Kingdom (UK) imports the vegemite from Monopoly OZ Health and has contracted to import 100 tonnes of vegemite at AUD 50,000 each. The importer has to pay the bill in Australian dollar (AUD). Assuming GBP 1 = AUD 1.7809 1.7841 is quoted in Melbourne.

(i) Is this quote direct or indirect? Explain your answer in full. (2 marks)

(ii) Identify and justify whether the importer will use the bid or offer rate. In your answer, please specify which the bid rate is and which the offer rate is. (2 marks)

(iii) Calculate the cost for the importer in GBP of buying 100 tonnes of vegemite. (2 marks)