5 Hedge currency risks Today is 1 September and the spot exchange rate AUD 1.00 = NZD 1.22. That is, one AUD buys you NZD 1.22. You have no underlying position/commitments in NZD but will merely speculate on exchange rate movements. The six-month forward rate for AUD 1.00 = NZD 1.18. If you want to speculate on the NZD strengthening relative to the AUD, will you take a long or short forward position in NZD? (long or short) On maturity of this forward contract in six-month's time, the spot exchange rate is 1.05 (i.e. AUD 1.00 buys NZD 1.05). You close out the forward position with a new transaction equal in magnitude (NZD 100,000) and opposite in sign to your original transaction in part b). What is your net position on the forward contracts? $

5 Hedge currency risks Today is 1 September and the spot exchange rate AUD 1.00 = NZD 1.22. That is, one AUD buys you NZD 1.22. You have no underlying position/commitments in NZD but will merely speculate on exchange rate movements. The six-month forward rate for AUD 1.00 = NZD 1.18. If you want to speculate on the NZD strengthening relative to the AUD, will you take a long or short forward position in NZD? (long or short) On maturity of this forward contract in six-month's time, the spot exchange rate is 1.05 (i.e. AUD 1.00 buys NZD 1.05). You close out the forward position with a new transaction equal in magnitude (NZD 100,000) and opposite in sign to your original transaction in part b). What is your net position on the forward contracts? $

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 33QA

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nswered Today you observe the folowing quotes: Spot EURUSD= $1.14 60 Day Forward EURUSD = $1.04 In 60 day you expec to receive 447,014 Euros. In 60 days you expect the EURUSD exchange rate to be $1.23. In 60 days the EURUSD actually is $1.03. You decided to not hedge your receivables. How many USD will you receive? 433,994.17
8. Consider countries X and Y with risk-free rates of 8 and 10 percent, respectively. The future price (Currency X/ Currency Y) for a contract deliverable in 3 months is the same as the current exchange rate. Is there any arbitrage opportunity? If there is, design a strategy to exploit the arbitrage
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