Lehman Ltd sells some printed material to an organisation in the United States on 1 July 2023. The price is denominated in US dollars and is US$500 000. It is to be paid on 1 September 2023. The amount is guaranteed by a local bank so that payment is deemed to be very certain. The spot rate on the date of the transaction is A$1 = US$0.70.

Worried about fluctuations in the value of the Australian dollar, Lehman decides to enter a forward rate agreement with the bank in which the latter agrees to buy US$500 000 from Lehman Ltd on 1 September at an agreed forward rate of US$0.72.

1. Describe how entering a forward rate agreement will reduce the risk of Lehman Ltd.

2. How much money, in Australian dollars, will Lehman Ltd ultimately receive from the sale?