Suppose you are importing shoes from Italy and exporting leather to Australia. Currency of Italy is Euro and currency of Australia is Australian Dollar.

a) You need Euro50,000 in six month time to pay your supplier of shoes. You have entered into currency six-month forward contract to buy Euro at NZD1.5825. Currently one NZ Dollar is buying NZD1.5625. Forward spot rate in six month time was NZD1.5978. Calculate profit/loss you made on this deal. Why did you want to enter into such a forward contract? Explain your reasons.

b) You will be paid AUD$100,000 in six month time by your buyer for the leather imported there. Currently one NZDollar buys AUD 0.93. You decidedto enter into a six month forward contract to sell AUD 100,000 and get NZ Dollars. The six month forward rate is NZD 1.00=AUD 0.89. The spot rate in six month time was AUD 0.90 Calculate profitloss made on this deal. Why did you want to enter into such a forward contract? Explain your reasons.