2. As an importer of coffee into Malaysia from Australia, you have agreed to pay AUD...

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2. As an importer of coffee into Malaysia from Australia, you have agreed to pay AUD 500,000 in 90 days after you receive your beans. You face the following exchange rates and interest rates: Spot exchange rate 90-day forward exchange rate MYR3.20/AUD MYR3.05/AUD 90-day Australian dollar interest rate 1.05% p.a. 90-day MYR interest rate 1.75% p.a. a) Describe the nature and extent of your transaction foreign exchange risk. (1 mark) b) There are two ways to hedge the risk (forward and MM hedge). Calculate the MYR cost in 90 days with both hedging strategies. You must show your workings (use number with 4 decimal places) with a step-by-step approach. In particular, for MM hedge, please provide explanation for each of 3 steps. (4 marks) 2. As an importer of coffee into Malaysia from Australia, you have agreed to pay AUD 500,000 in 90 days after you receive your beans. You face the following exchange rates and interest rates: Spot exchange rate 90-day forward exchange rate MYR3.20/AUD MYR3.05/AUD 90-day Australian dollar interest rate 1.05% p.a. 90-day MYR interest rate 1.75% p.a. a) Describe the nature and extent of your transaction foreign exchange risk. (1 mark) b) There are two ways to hedge the risk (forward and MM hedge). Calculate the MYR cost in 90 days with both hedging strategies. You must show your workings (use number with 4 decimal places) with a step-by-step approach. In particular, for MM hedge, please provide explanation for each of 3 steps. (4 marks)

Answer rating: 100% (QA)

Transaction Foreign Exchange Risk a Nature and Extent of Risk Your transaction foreign exchange risk is currency depreciation You are agreeing to pay ... View the full answer