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Suppose a domestic bank holds Chinese Renminbi (CNY) 3,500 million worth of assets and 2,000 million worth of liabilities. The bank is expecting that the
Suppose a domestic bank holds Chinese Renminbi (CNY) 3,500 million worth of assets and 2,000 million worth of liabilities. The bank is expecting that the price of 1 CNY will fall from 0.1930AUD to 0.1875AUD. The price on foreign exchange futures is $0.1925/CNY now. 2.1. What risk-averse strategy using futures could the bank adopt? And Why? 2.2. Calculate the gain/loss on this trade if the price on foreign exchange futures changes to $0.1872/CNY. 2.3. Is the strategy perfect? Why or why not?
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