Question 5

a) An Australian textile company is exporting goods to Malaysia. In order to ascertain the firms competitiveness in the foreign market, it needs to calculate the MYR/AUD cross-rate. A FX dealer quotes the following rates:

USD/AUD 1.4113-27

USD/MYR 5.230278

Calculate the MYR/AUD cross rate.

b) A Thailand importer has entered into a contract under which it will require payment in AUD in one month. The company is concerned at its exposure to foreign exchange risk and decides to enter into a forward exchange contract with its bank. Given the following data, calculate the forward rate offered by the bank. Both countries use a 360-day year; assume 60-day contract.

THB/AUD 0.1231 - 39

One-month Thailand interest rate: 4.31% p.a.

One-month Australian interest rate: 2.76% p.a.