Question 2

You are a CFO of an Australian company with a liability of USD 1 million due in December 2021. You have receivables of 10 million Japanese yen due in December 2021. Assuming that the forecasts given in table 1 are accurate and using the forward rates for AUD/USD and AUD/JPY, does it make sense to hedge a) your payable in USD; b) your receivable in JPY? Illustrate with data obtained from internet sources. You may use forwards/futures/options on the relevant currency pairs (if available)

Australia 3 Year Government Bond QUOTES & COMPANIES TMBMKAU-03Y (Tullett Prebon) VIEW ALL COMPANIES 1 D 5 D 1M 3M YTD 14 3Y YIELD 4:30 PM AEDT 10/19/20 1 Day Range 0.133 - 0.143 YIELD 0.141% 52 Week Range (Yield) 0.129 - 0.936 (10/07/20 - 12/31/19) 0.15% 0.006 ruhn 0.14% PRICE Coupon 5.500% 113.358 -0.029 (-0.03%) 0.13% Maturity 04/21/23 Oct 13 Oct 14 Oct 15 Oct 16 Oct 19 Open 0.134 Prior Close (Yield) 0.140 1 Day Price Chg TMBMKAU-03Y -0.03% Japan 10 Year -0.03% U.S. 10 Year -0.06% Germany 10 Year 0.05% A DATE OPEN HIGH LOW CLOSE 10/19/20 0.134 0.143 0.133 0.140 10/16/20 0.147 0.147 0.134 0.134 10/15/20 0.153 0.160 0.130 0.147 10/14/20 0.149 0.156 0.147 0.153 10/13/20 0.149 0.152 0.141 0.149 10/12/20 0.149 0.154 0.145 0.149 10/09/20 0.150 0.155 0.141 0.149 10/08/20 0.144 0.163 0.138 0.150 10/07/20 0.173 0.173 0.129 0.144 10/06/20 0.181 0.193 0.171 0.173 10/02/20 0.191 0.191 0.170 0.178 10/01/20 0.170 0.198 0.170 0.191 09/30/20 0.167 0.183 0.167 0.170 09/29/20 0.163 0.172 0.161 0.167 09/28/20 0.175 0.175 0.162 0.163 09/25/20 0.175 0.187 0.167 0.175 09/24/20 0.181 0.193 0.174 0.175 09/23/20 0.217 0.227 0.168 0.181 09/22120 0.236 0.243 0.217 0.217 09/21/20 0.241 0.241 0.233 0.236 QUOTES & COMPANIES Q Australia 1 Year Government Bond TMBMKAU-01Y (Tullett Prebon) VIEW ALL COMPANIES 1D 5D 1M 3M YTD 1 Y 3Y 4:30 PM AEDT 10/19/20 YIELD 1 Day Range 0.104 - 0.110 YIELD 0.106% 52 Week Range (Yield) 0.101 - 0.948 (10/07/20 - 01/02/20) 0.110% -0.004 Marina 0.105% PRICE Coupon 2.000% 102.208 -0.001 (0.00%) 0.100% Maturity 12/21/21 Oct 13 Oct 14 Oct 15 Oct 16 Oct 19 Open 0.110 Prior Close (Yield) 0.106 1 Day Price Chg TMBMKAU-01Y 0.00% Japan 10 Year -0.04% U.S. 10 Year -0.07% Germany 10 Year 0.05% DATE OPEN HIGH LOW CLOSE 10/19/20 0.110 0.110 0.104 0.106 10/16/20 0.111 0.111 0.105 0.110 10/15/20 0.108 0.116 0.105 0.111 10/14/20 0.110 0.113 0.108 0.108 10/13/20 0.109 0.113 0.107 0.110 10/12/20 0.112 0.112 0.106 0.109 10/09/20 0.114 0.116 0.109 0.112 10/08/20 0.109 0.126 0.102 0.114 10/07/20 0.122 0.122 0.101 0.109 10/06/20 0.119 0.130 0.117 0.122 10/02/20 0.126 0.126 0.115 0.121 10/01/20 0.120 0.135 0.120 0.126 09/30/20 0.121 0.128 0.119 0.120 09/29/20 0.122 0.124 0.117 0.121 09/28/20 0.116 0.144 0.116 0.122 09/25/20 0.116 0.127 0.114 0.116 09/24/20 0.140 0.140 0.116 0.116 09/23/20 0.150 0.158 0.139 0.140 09/22/20 0.160 0.163 0.149 0.150 09/21/20 0.161 0.162 0.155 0.160 Buy Sell AD1 Forex market at a glance Pair Last Open High Low Chg. - Chg.% Time + EUR/USD 1.1722 1.1721 1.1725 1.1703 +0.0004 +0.03% 18:58:05 + GBP/USD 1.2973 1.2913 1.2979 1.2897 +0.0060 +0.46% 18:58:06 USD/JPY 105.39 105.38 105.50 105.34 -0.01 -0.00% 18:58:07 USD/CHF 0.9146 0.9149 0.9166 0.9144 0.0000 +0.01% 18:58:05 + AUD/USD 0.7097 0.7077 0.7108 0.7073 +0.0017 +0.24% 18:58:03 EUR/GBP 0.9035 0.9069 0.9089 0.9023 -0.0033 -0.36% 18:58:04 USD/CAD 1.3182 1.3191 1.3195 1.3169 -0.0005 -0.04% 18:58:03 + NZD/USD 0.6625 0.6603 0.6630 0.6602 +0.0021 +0.32% 18:58:05 + EUR/JPY 123.55 123.54 123.64 123.36 +0.02 +0.02% 18:58:04 + GBP/JPY 136.74 136.17 136.86 135.93 +0.54 +0.40% 18:58:03 Table 1: Foreign currency Forecasts: Source NAB September 28, 2020 Exchange rate forecast Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Majors AUD/USD 0.74 0.76 0.77 0.77 0.78 0.79 0.80 0.80 NZD/USD 0.66 0.67 0.68 0.69 0.70 0.70 0.72 0.72 USD/JPY 103 103 100 100 100 99 98 98 EUR/USD 1.22 1.23 1.25 1.26 1.27 1.28 1.30 1.31 GBP/USD 1.36 1.40 1.40 1.43 1.44 1.45 1.47 1.48 USD/CHF 0.91 0.91 0.91 0.91 0.91 0.92 0.91 0.91 USD/CAD 1.32 1.29 1.28 1.28 1.27 1.26 1.25 1.25 USD/CNY 6.70 6.60 6.55 6.50 6.45 6.40 6.35 6.30 Australian Cross Rates AUD/NZD 1.13 1.13 1.13 1.12 1.11 1.12 1.11 1.11 AUD/JPY 76 78 77 77 78 78 78 78 AUD/EUR 0.61 0.61 0.62 0.61 0.62 0.62 0.61 0.61 AUD/GBP 0.54 0.54 0.55 0.54 0.54 0.54 0.54 0.54 AUD/CHF 0.67 0.69 0.70 0.71 0.71 0.72 0.73 0.73 AUD/CAD 0.97 0.98 0.99 0.99 0.99 0.99 1.00 1.00 AUD/CNY 4.96 4.99 5.04 5.03 5.05 5.04 5.06 5.04 Effective 28 September 2020 Australia 3 Year Government Bond QUOTES & COMPANIES TMBMKAU-03Y (Tullett Prebon) VIEW ALL COMPANIES 1 D 5 D 1M 3M YTD 14 3Y YIELD 4:30 PM AEDT 10/19/20 1 Day Range 0.133 - 0.143 YIELD 0.141% 52 Week Range (Yield) 0.129 - 0.936 (10/07/20 - 12/31/19) 0.15% 0.006 ruhn 0.14% PRICE Coupon 5.500% 113.358 -0.029 (-0.03%) 0.13% Maturity 04/21/23 Oct 13 Oct 14 Oct 15 Oct 16 Oct 19 Open 0.134 Prior Close (Yield) 0.140 1 Day Price Chg TMBMKAU-03Y -0.03% Japan 10 Year -0.03% U.S. 10 Year -0.06% Germany 10 Year 0.05% A DATE OPEN HIGH LOW CLOSE 10/19/20 0.134 0.143 0.133 0.140 10/16/20 0.147 0.147 0.134 0.134 10/15/20 0.153 0.160 0.130 0.147 10/14/20 0.149 0.156 0.147 0.153 10/13/20 0.149 0.152 0.141 0.149 10/12/20 0.149 0.154 0.145 0.149 10/09/20 0.150 0.155 0.141 0.149 10/08/20 0.144 0.163 0.138 0.150 10/07/20 0.173 0.173 0.129 0.144 10/06/20 0.181 0.193 0.171 0.173 10/02/20 0.191 0.191 0.170 0.178 10/01/20 0.170 0.198 0.170 0.191 09/30/20 0.167 0.183 0.167 0.170 09/29/20 0.163 0.172 0.161 0.167 09/28/20 0.175 0.175 0.162 0.163 09/25/20 0.175 0.187 0.167 0.175 09/24/20 0.181 0.193 0.174 0.175 09/23/20 0.217 0.227 0.168 0.181 09/22120 0.236 0.243 0.217 0.217 09/21/20 0.241 0.241 0.233 0.236 QUOTES & COMPANIES Q Australia 1 Year Government Bond TMBMKAU-01Y (Tullett Prebon) VIEW ALL COMPANIES 1D 5D 1M 3M YTD 1 Y 3Y 4:30 PM AEDT 10/19/20 YIELD 1 Day Range 0.104 - 0.110 YIELD 0.106% 52 Week Range (Yield) 0.101 - 0.948 (10/07/20 - 01/02/20) 0.110% -0.004 Marina 0.105% PRICE Coupon 2.000% 102.208 -0.001 (0.00%) 0.100% Maturity 12/21/21 Oct 13 Oct 14 Oct 15 Oct 16 Oct 19 Open 0.110 Prior Close (Yield) 0.106 1 Day Price Chg TMBMKAU-01Y 0.00% Japan 10 Year -0.04% U.S. 10 Year -0.07% Germany 10 Year 0.05% DATE OPEN HIGH LOW CLOSE 10/19/20 0.110 0.110 0.104 0.106 10/16/20 0.111 0.111 0.105 0.110 10/15/20 0.108 0.116 0.105 0.111 10/14/20 0.110 0.113 0.108 0.108 10/13/20 0.109 0.113 0.107 0.110 10/12/20 0.112 0.112 0.106 0.109 10/09/20 0.114 0.116 0.109 0.112 10/08/20 0.109 0.126 0.102 0.114 10/07/20 0.122 0.122 0.101 0.109 10/06/20 0.119 0.130 0.117 0.122 10/02/20 0.126 0.126 0.115 0.121 10/01/20 0.120 0.135 0.120 0.126 09/30/20 0.121 0.128 0.119 0.120 09/29/20 0.122 0.124 0.117 0.121 09/28/20 0.116 0.144 0.116 0.122 09/25/20 0.116 0.127 0.114 0.116 09/24/20 0.140 0.140 0.116 0.116 09/23/20 0.150 0.158 0.139 0.140 09/22/20 0.160 0.163 0.149 0.150 09/21/20 0.161 0.162 0.155 0.160 Buy Sell AD1 Forex market at a glance Pair Last Open High Low Chg. - Chg.% Time + EUR/USD 1.1722 1.1721 1.1725 1.1703 +0.0004 +0.03% 18:58:05 + GBP/USD 1.2973 1.2913 1.2979 1.2897 +0.0060 +0.46% 18:58:06 USD/JPY 105.39 105.38 105.50 105.34 -0.01 -0.00% 18:58:07 USD/CHF 0.9146 0.9149 0.9166 0.9144 0.0000 +0.01% 18:58:05 + AUD/USD 0.7097 0.7077 0.7108 0.7073 +0.0017 +0.24% 18:58:03 EUR/GBP 0.9035 0.9069 0.9089 0.9023 -0.0033 -0.36% 18:58:04 USD/CAD 1.3182 1.3191 1.3195 1.3169 -0.0005 -0.04% 18:58:03 + NZD/USD 0.6625 0.6603 0.6630 0.6602 +0.0021 +0.32% 18:58:05 + EUR/JPY 123.55 123.54 123.64 123.36 +0.02 +0.02% 18:58:04 + GBP/JPY 136.74 136.17 136.86 135.93 +0.54 +0.40% 18:58:03 Table 1: Foreign currency Forecasts: Source NAB September 28, 2020 Exchange rate forecast Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Majors AUD/USD 0.74 0.76 0.77 0.77 0.78 0.79 0.80 0.80 NZD/USD 0.66 0.67 0.68 0.69 0.70 0.70 0.72 0.72 USD/JPY 103 103 100 100 100 99 98 98 EUR/USD 1.22 1.23 1.25 1.26 1.27 1.28 1.30 1.31 GBP/USD 1.36 1.40 1.40 1.43 1.44 1.45 1.47 1.48 USD/CHF 0.91 0.91 0.91 0.91 0.91 0.92 0.91 0.91 USD/CAD 1.32 1.29 1.28 1.28 1.27 1.26 1.25 1.25 USD/CNY 6.70 6.60 6.55 6.50 6.45 6.40 6.35 6.30 Australian Cross Rates AUD/NZD 1.13 1.13 1.13 1.12 1.11 1.12 1.11 1.11 AUD/JPY 76 78 77 77 78 78 78 78 AUD/EUR 0.61 0.61 0.62 0.61 0.62 0.62 0.61 0.61 AUD/GBP 0.54 0.54 0.55 0.54 0.54 0.54 0.54 0.54 AUD/CHF 0.67 0.69 0.70 0.71 0.71 0.72 0.73 0.73 AUD/CAD 0.97 0.98 0.99 0.99 0.99 0.99 1.00 1.00 AUD/CNY 4.96 4.99 5.04 5.03 5.05 5.04 5.06 5.04 Effective 28 September 2020