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Question one (10 marks) TT Foods Ltd. (TTFL) has a payable of A$10,000,000 due in 90 days to an Australian food company in connection with
Question one (10 marks) TT Foods Ltd. (TTFL) has a payable of A$10,000,000 due in 90 days to an Australian food company in connection with a shipment of cheese and butter. The current exchange rate is A$1.05/US$. Currency analysts are forecasting that the dollar will weaken against the A$ by 1% over the next 90 days, and that the standard deviation of 90-day forecasts of the percentage rate of depreciation of the US dollar relative to the AS is 4%. A. Provide a qualitative description of TTFL 's transaction exchange risk. (3 marks) B. If TTFL chooses not to hedge its transaction exchange risk, what is the firm's expected US dollar revenue? (3 marks) C. If the receivables are not hedged, what is the range of possible dollar revenues that incorporates 95.45% of the possibilities (assuming a normal distribution)? (4 marks)
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