In 3 months, an Australian international trading company wishes to hedge a payment of $5 million Chinese Yuan (CNY) and income of USD $1.5 million.

In 3 months the anticipated interest rates in each country will be: Australia 3.1%, USA 4.5%,China 3.7% and the current spot rates are AUD/CNY 4.7 and USD/AUD 1.45 Using Covered Interest Parity,calculate the implied 3-month forward between AUD/CNY and USD/AUD.

Using your calculated forward rates, the amount of AUD required to pay the $5 millon Chinese Yuan will be (4 marks) while the amount of AUD received from the $1.5 million USD income will be (4 marks).

What currency movement would be upside-risk for the trading company's USD foreign currency income? (1 mark)

What currency movement would be downside-risk the trading company's CNY foreign currency payment? (1 mark)