On 1st April an Australian exporter sells A $10m of coal to a New Zealand company. The importer is sent an invoice for NZ$11m payable in six months. The spot rate of exchange between the Australian and New Zealand dollars is NZ\$1.1/A\$. Required: a) If the spot rate of exchange six months later is NZ\$1.25/A\$ what exchange rate gain or loss will be made by the Australian exporter? b) If the spot rate of exchange six months later is NZ$1.05/A$ what exchange rate gain or loss will be made by the Australian exporter? c) A six month forward is available at NZ\$1.09/A\$. Show how risk can be reduced using the forward. d) Discuss the relative merits of using forwards and options to hedge forex risk