5. As a US exporter, we have the option of hedging with forwards, options, or not hedging. The size of the transaction is 3.04 million Australian $. The current Exchange Rate is .7400-05 AUDUSD, and the 3 month forward Rate is .7500-05 AUDUSD. Australian Dollar options with an exercise price of .75 sells for a price of $.05 for calls and $.04 for puts. There are 100,000 Australian dollars in 1 option contract.

In 3 months when the transaction occurs, the final exchange rate is .700-02 AUDUSD, and option prices are .00 for calls and .10 for puts. (10)

a) How much would you receive/pay if you had hedged with forwards?

b) How much would you receive/pay if you had hedged with options?

c) How much would you receive/pay if you had not hedged?

d) Rank them

Answer rating: 100% (QA)

Hedging the Australian Dollar Transaction Heres the breakdown of each hedging scenario and the final ... View the full answer