Question:

An Australian company is planning to sell 1000 US-based shares to a US company. The two companies enter into a forward contract to sell the shares for some US $ amount F in one month's time. To ensure it can get a reasonable exchange rate for the payment in US\$, the Australia company also enters into a short forward contract to sell the US $ currency F at some forward rate k. The current price of one share is S(0)= US $12 and the current exchange rate is AU $1 buys US $0.68. The current Australian return is Rd=1.04 over one month and the current US return is Rf=1.02 over one month. Consider the forward contract with US $ as the underlying asset. According to the one-step binomial model, what is a fair value for the forward rate k