Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Q3. Cold Storage Malaysia Sdn Bhd needs to pay AUD 575,000 in 2 months time for the purchase of fresh fruits and vegetables from an
Q3. Cold Storage Malaysia Sdn Bhd needs to pay AUD 575,000 in 2 months time for the purchase of fresh fruits and vegetables from an Australian supplier. Knowing that it is exposed to fluctuations in AUD/MYR exchange rate, Cold Storage is considering the following alternatives: Alternative 1 : Do nothing, i.e. to wait until the AUD is due to be paid in 2 months' time and to buy the amount required at whatever spot rate at that time. Alternative 2 : Hedge by entering into an FX forward contract. i. Explain what Cold Storage need to do if Alternative 1 were selected. (2 marks) ii. Again if Alternative 1 were to be used, calculate the amount in MYR that Cold Storage would pay in 2 months from now under the different AUD/MYR exchange rate scenarios at maturity by filling up the blank spaces in the following Table 1. Also compute potential gain or loss to Cold Storage in MYR in each scenario. (8 marks) Table 1 If Spot Rate Gain / (Loss) Amount To Be Allocated at Maturity is... MYR per AUD in MYR 3.1000 0.0085 1,782,500 3.1050 0.0035 1,785,375 3.1100 (0.0015) 1,788,250 3.1150 (0.0065) 1,791,125
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started