Question 4: Forward FX Contracts (10 marks)

Consider the following spot change rate for AUD against USD:

Spot AUD/USD 0.9850

Interest rates: AU: 8.05% and US: 5.75%

1. What is the forward rate for value date 170 days?

Assumed we sold AUD 1 million 170-day forward contract at the above forward rate, and after 70 days we offset the forward contract by buying a 100-day forward contract. The spot exchange rate and interest rates after 70 days are:

Spot AUD/USD 0.9975

Interest rates: AU: 8.00% and US: 5.00%

2. Have we gained or lost?