Today the spot rate between US dollars (USD) and Australian dollars (AUD) is AUD1=USD0.6897. An importer of goods in Australia has purchased from a US counterpart and will make a payment of USD2,000,000 in 6 months time. The current 6-month forward rate is AUD1=USD0.6818.

Assume that the Australian importer enters a 6-month forward contract to hedge their exchange rate exposure. If the spot rate is AUD1=USD0.7138 in 6 months time, when the forward contract is closed the outcome for the Australian importer will be.

Select one:

The importer pays AUD2,801,905 and is worse off under the hedge, than if the importer had not hedged.

The importer pays AUD2,801,905 and is better off under the hedge, than if the importer had not hedged.

The importer pays AUD2,933,412 for the goods and is better off under the hedge, than if the importer had not hedged.

The importer pays AUD2,933,412 for the goods and is worse off under the hedge, than if the importer had not hedged.