Question 1

An Australian exporter WA Co. will receive 5.34 million Chinese yuan (CNY) from a Chinese importer Sing Tao in one year. WA Co. analyses the different hedging strategies (forward, money market and options) using the market information in the following Table 1 to minimise its exchange rate risk for the Australian dollar (A$) cash flow.

Calculate the A$ proceeds from the forward hedging strategy based on the information in Table 1.

(enter the whole number without sign and symbol).

Question 2

Calculate the A$ proceeds for the money market hedging strategy using the market information in Table 1.

Question 3

Calculate the minimum A$ proceeds for the options hedging strategy based on the market information in Table 1

Question 4

After analysing the different hedging strategies, WA Co. found that none of these hedging strategies (forward, money market and options) provides the expected A$ proceeds and wants to receive A$ rather than CNY in one year. Therefore, WA Co. proposed Sing Tao to pay WA Co. A$2.09 million instead of the initial an agreed amount of CNY5.34 million. As an importer before signing a new agreement, Sing Tao analyses the different hedging strategies using the market information in Table 1 to minimise its exchange rate risk for the payment of A$2.09 million.

What is the CNY costs for the forward hedging strategy based on the information in Table 1?

Question 5

What is the CNY costs for the money market hedging strategy based on the information in Table 1?

Question 6

Calculate the maximum CNY costs for the options hedging strategy using the information in Table 1.

TABLE 1 For Chinese yuan (CNY) Spot rate A$0.4633/CNY One-year forward rate A$0.5350/CNY One-year CNY deposit and borrowing rate 8.66% One-year call options Exercise price = A$0.62 Premium = A$0.04 One-year put options Exercise price = A$0.58 Premium = A$0.05 For Australian dollar (A$) Spot rate CNY2.8009/A$ One-year forward rate CNY1.7463/A$ One-year A$ deposit and borrowing rate 4.91% One-year call options Exercise price = CNY2.36 Premium = CNYO. 16 One-year put options Exercise price = CNY2.06 Premium = CNYO.15