The CEO is concerned about the potential increase in interest rates by 0.85% in Australia. The Australian subsidiary currently holds a short-term loan of AUD2,200,000 that will mature in 60 days. After the loan expires, the subsidiary will need to borrow the same amount again to cover operational expenses. To mitigate the risk of rising interest rates, the CEO is considering a 60-day forward rate agreement in Australia. The agreed rate for the calculation will be based on the current risk-free Australia rate, and the settlement rate will be the current risk-free rate plus 0.85%.

To advise the CEO on whether XYZ should take a long or short position to hedge against the risk of increasing interest rates, the information from the provided table can be utilized for the necessary calculations.

Annual risk-free interest rates:
Singapore	0.258%
Japan	0.025%
South Korea	0.664%
Canada	0.166%
UK	0.106%
Australia	0.112%
South Africa	4.545%

1. Show your calculation by applying the correct formula in the space provided below:
2. Briefly explain how the forward rate agreement will assist XYZ in terms of the interest rate that it will have to pay if it borrows AUD2,200,000 again for 60 days after the expiry of the current loan.