Scenario 2: Considering the calculations you have done so far, you need to attend to a number of import and export transactions for goods that companies in the United States expressed interest in. The first transaction is for the import of good quality wines from Australia, since a retail liquor trading chain customer in the United States, for who you have been doing imports over the past five years has a very large order this time. The producer in Australia informed you that the current cost of the wine that you want to import is AUD$2,500,000. The wine in Australia can be shipped to the United States immediately but you have three months to conduct payment. The second transaction is for the export of 3d printers manufactured in the U.S.A. The country where it will be exported to is Britain. The payment of 2,500,000 for the export to Britain will be received nine months from now. You consider different transaction hedges, namely forwards, options and money market hedges. You are provided with the following quotes from your bank, which is an international bank with branches in all the countries: Forward rates: | Currencies Spot 3 month (906 month (180 9 month (270 12 month (360 days) days) days) days) $/ 1.30009 1.30611 1.31217 1.31825 1.32436 S/AUD 0.72390 0.72516 0.72641 0 .72766 0 .72892 Bank applies 360 day-count convention to all currencies (for this assignment apply 360 days in all calculations) Annual borrowing and investment rates for your company: 6 months rates Borrow Invest 9 month rates Borrow Invest 12 month rates Borrow Invest Country 3 month rates Borrow Invest United States 2.687% 2.554% Britain 10.786% 0.747% Australia 1.973% 1.875% 2.713% 0.794% 1.992% 2.580% 0.755% 1.894% 2.740% 0.801% 2.012% 2.607% 0.762% 1.914% 2.766% 0.809% 2.031% 2.633% 0.770% 1.933% Bank applies 360 day-count convention to all currencies. Explanation - e.g. 3 month borrowing rate on $ = 2.687%. This is the annual borrowing rate for 3 months. If you only borrow for 3 months the interest rate is actually 2.687%/4 = 0.67175% (always round to 7 decimals when you do calculations). Furthermore, note that these are the rates at which your company borrows and invests. The rates are not borrowing and investment rates from a bank perspective. Table 3: Australia import cost with money market hedge: (8 marks) Converted at spot to PV of foreign currency $ and to be to be invested borrowed $ amount to be repaid after period Exchange rate locked in with transaction Show answers in this row: Show your workings in the columns below the answers (Use 7th decimal rounding in workings) Table 4: Australia import cost with option hedge: (8 marks) Type of option (Call or put?) Total premium cost for import Total cost of option in $ (Strike plus premium) Option hedge breakeven exchange rate Show answers in this row: Show your workings in the columns below the answers (use 7th decimal rounding in workings) Total cost of option in $/ Total AUD value of transaction Scenario 2: Considering the calculations you have done so far, you need to attend to a number of import and export transactions for goods that companies in the United States expressed interest in. The first transaction is for the import of good quality wines from Australia, since a retail liquor trading chain customer in the United States, for who you have been doing imports over the past five years has a very large order this time. The producer in Australia informed you that the current cost of the wine that you want to import is AUD$2,500,000. The wine in Australia can be shipped to the United States immediately but you have three months to conduct payment. The second transaction is for the export of 3d printers manufactured in the U.S.A. The country where it will be exported to is Britain. The payment of 2,500,000 for the export to Britain will be received nine months from now. You consider different transaction hedges, namely forwards, options and money market hedges. You are provided with the following quotes from your bank, which is an international bank with branches in all the countries: Forward rates: | Currencies Spot 3 month (906 month (180 9 month (270 12 month (360 days) days) days) days) $/ 1.30009 1.30611 1.31217 1.31825 1.32436 S/AUD 0.72390 0.72516 0.72641 0 .72766 0 .72892 Bank applies 360 day-count convention to all currencies (for this assignment apply 360 days in all calculations) Annual borrowing and investment rates for your company: 6 months rates Borrow Invest 9 month rates Borrow Invest 12 month rates Borrow Invest Country 3 month rates Borrow Invest United States 2.687% 2.554% Britain 10.786% 0.747% Australia 1.973% 1.875% 2.713% 0.794% 1.992% 2.580% 0.755% 1.894% 2.740% 0.801% 2.012% 2.607% 0.762% 1.914% 2.766% 0.809% 2.031% 2.633% 0.770% 1.933% Bank applies 360 day-count convention to all currencies. Explanation - e.g. 3 month borrowing rate on $ = 2.687%. This is the annual borrowing rate for 3 months. If you only borrow for 3 months the interest rate is actually 2.687%/4 = 0.67175% (always round to 7 decimals when you do calculations). Furthermore, note that these are the rates at which your company borrows and invests. The rates are not borrowing and investment rates from a bank perspective. Table 3: Australia import cost with money market hedge: (8 marks) Converted at spot to PV of foreign currency $ and to be to be invested borrowed $ amount to be repaid after period Exchange rate locked in with transaction Show answers in this row: Show your workings in the columns below the answers (Use 7th decimal rounding in workings) Table 4: Australia import cost with option hedge: (8 marks) Type of option (Call or put?) Total premium cost for import Total cost of option in $ (Strike plus premium) Option hedge breakeven exchange rate Show answers in this row: Show your workings in the columns below the answers (use 7th decimal rounding in workings) Total cost of option in $/ Total AUD value of transaction