The profit from China in 2020 is forecast to be 554,615,000. The company plans to hedge up to 25% the foreign currency exchange rate exposure of the forecast net cashflow. The interest rate information and inflation rate forecast are in Table 1, and the financial instruments available for hedging in Table 2. Note that the use of option hedging will cost the firm an option premium of 5% of the CNY notional value. Forward and option rates are presented in Table 2. The initial exchange rate is \ 4.7939/AS. Question: Analyse the scenarios with three alternative strategies, namely Do nothing (no hedge), 100% forward hedge, and 100% options hedge. Compute the AUD value of these receipts under the assumptions of being unhedged, 100% forward hedge (100% of student costs), and 100% options hedge for 3 different possible exchange rates next year: 4.7161 (Stronger CNY), 4.8505 (Stable CNY), and 5.3969 (Weak CNY). You can assume the net cashflow receiving date and the options and forwards maturity match. Present the results in the format of Table 3 below. Graph the impact receipts for being unhedged, 100% forward hedge, and 100% options hedge with the 3 possible exchange rates. Annual Interest rate. Annual Inflation forecast As of September 2019 China. 4.25% 2.30% Australia. 1% 2%. Table 1 - Interest rate and Forecast Inflation rate.. 1 Year As of September 2019 Forward and Option rate 3 Month 6 Month. 4.81281 4.8267 Table 2- Forward and Option rate.. 9 Month. 4.8395. 4.8517 IMPACT** ACTUAL AS RECEIPTS. ANY Exchange Rate (CNY/AS). 4.7161 4.8505 5 .3969 CNY Exchange Rate (CNY/A$) 47161 4.8505. | 5.3969 Hedge Used | Unhedged. 100% Forward 100% Option. *Benchmark assumes no change from initial exchange rate hut uses actual cashflow... **NOTE: Impact = Benchmark $ Receipt - Actual $ Receipt Table 3- (You have to provide an appropriate name) .. The profit from China in 2020 is forecast to be 554,615,000. The company plans to hedge up to 25% the foreign currency exchange rate exposure of the forecast net cashflow. The interest rate information and inflation rate forecast are in Table 1, and the financial instruments available for hedging in Table 2. Note that the use of option hedging will cost the firm an option premium of 5% of the CNY notional value. Forward and option rates are presented in Table 2. The initial exchange rate is \ 4.7939/AS. Question: Analyse the scenarios with three alternative strategies, namely Do nothing (no hedge), 100% forward hedge, and 100% options hedge. Compute the AUD value of these receipts under the assumptions of being unhedged, 100% forward hedge (100% of student costs), and 100% options hedge for 3 different possible exchange rates next year: 4.7161 (Stronger CNY), 4.8505 (Stable CNY), and 5.3969 (Weak CNY). You can assume the net cashflow receiving date and the options and forwards maturity match. Present the results in the format of Table 3 below. Graph the impact receipts for being unhedged, 100% forward hedge, and 100% options hedge with the 3 possible exchange rates. Annual Interest rate. Annual Inflation forecast As of September 2019 China. 4.25% 2.30% Australia. 1% 2%. Table 1 - Interest rate and Forecast Inflation rate.. 1 Year As of September 2019 Forward and Option rate 3 Month 6 Month. 4.81281 4.8267 Table 2- Forward and Option rate.. 9 Month. 4.8395. 4.8517 IMPACT** ACTUAL AS RECEIPTS. ANY Exchange Rate (CNY/AS). 4.7161 4.8505 5 .3969 CNY Exchange Rate (CNY/A$) 47161 4.8505. | 5.3969 Hedge Used | Unhedged. 100% Forward 100% Option. *Benchmark assumes no change from initial exchange rate hut uses actual cashflow... **NOTE: Impact = Benchmark $ Receipt - Actual $ Receipt Table 3- (You have to provide an appropriate name)
