Assume the following information:

GBP deposit rate for 1 year = 3%

GBP borrowing rate for 1 year = 4%

Australian Dollar deposit rate for 1 year = 4%

Australian Dollar borrowing rate for 1 year = 5%

AUD / GBP 1 year forward rate = 0.59

Spot AUD / GBP = 0.58

Assume that a British exporter denominates its Australian exports in AUD and expects to receive AUD 2,000,000 in 1 year. Using the information above, what will be the approximate value of these exports in 1 year in GBP if the firm executes forward hedge and a money market hedge? Which one is more feasible for the company?

Answer rating: 100% (QA)

1 Forward Hedge Lock in a fixed exchange rate The exporter enters a 1year forward contract to sell A... View the full answer