On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months’ time. A sum of US$1 000 000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000 000 in six months’ time at an exchange rate of A$1.00 = US$0.70.

REQUIRED

Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the inventory.