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Please help answer from a to c :) A UK importer of Australian emu meat owes the Australian company GBP 50,000, due in six months.
Please help answer from a to c :)
A UK importer of Australian emu meat owes the Australian company GBP 50,000, due in six months. The current AUD/GBP spot exchange rate is GBP 0.3878 and the six-month interest rates for Australia and the UK are 5.75% p.a. and 7.75% p.a., respectively. a) Calculate the AUD value of the receivables under a money market hedge. Show all calculations. b) If the spot exchange rate in 6 months is expected to be 0.3802, will the hedge decision be taken? What if the spot exchange rate is 0.4020? Explain. c) If the company does decide to hedge, what is the gain or loss on the hedge transaction if the exchange rate in 6 months is actually 0.4020Step by Step Solution
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