# 1 On 1 April an Australian exporter sells A\$10m of coal to a New Zealand company. The importer is…

1 On 1 April an Australian exporter sells A\$10m of coal to a New
Zealand company. The importer is sent an invoice

for NZ\$11m payable in six months. The
spot rate of exchange between the Australian and New Zealand dollars is

NZ\$1.1/A\$.

a If the spot rate of exchange six months
later is NZ\$1.2/A\$ what exchange rate gain or loss will be made by the

Australian exporter?

b If the spot rate of exchange six months
later is NZ\$1.05/A\$ what exchange rate gain or loss will be made by the

Australian exporter?

c A six-month forward is available at
NZ\$1.09/A\$. Show how risk can be reduced

1 On 1 April an Australian exporter sells A\$10m of coal to a New
Zealand company. The importer is sent an invoice

for NZ\$11m payable in six months. The
spot rate of exchange between the Australian and New Zealand dollars is

NZ\$1.1/A\$.

a If the spot rate of exchange six months
later is NZ\$1.2/A\$ what exchange rate gain or loss will be made by the

Australian exporter?

b If the spot rate of exchange six months
later is NZ\$1.05/A\$ what exchange rate gain or loss will be made by the

Australian exporter?

c A six-month forward is available at
NZ\$1.09/A\$. Show how risk can be reduced using the forward.

d Discuss the relative merits of using
forwards and options to hedge forex risk.

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