Assume you have a trade receivable denominated in a foreign currency of your choice that is payable
Question:
Assume you have a trade receivable denominated in a foreign currency of your choice that is payable to you by your customer in 6 months. At the current spot rate the trade receivable is worth the equivalent of US$5,000,000. To find the current spot rate for the chosen currency pair go to http://www.hsbcnet.com/gbm/fxcalc-disp.[1] Enter 5,000,000 in the "Convert" box, United States dollar in the "From:" box, and your chosen currency in the "To:" box. Click on "Go" for the spot rate, which will be expressed in European terms, that is, units of foreign currency per one US dollar. Enter the name of the chosen currency, the date the site is accessed, and the spot rate in European terms in the table below.
To find a 180 day forward rate for the currency pair, go to http://www.hsbcnet.com/gbm/fwcalc-disp#. For "Amount" you can just enter 1 and enter US dollars in the "Buy" box and the foreign currency in the "Sell" box. For "Value Date" enter "6 Months" and click "Go" for the forward rate. (Clicking on the Inverse box will switch the rate from European to American terms.) Enter the one-year forward rate in the table below. Make sure the forward rate is expressed in the same way as the forward rate, that is, in European terms.
Australian dollar: AUD: 3/27/2021 (pulled on)
Current Spot Ratein European terms: FX per 1 USD: 0.7636
Six month forward rate in European terms: Fx per 1 US dollar: 0.7621
2.Long-Run Exchange Rate Risk
Assume you have undertaken a 3-year investment abroad with expected cash flows denominated in your chosen currency. At the current spot rate those cash flows are expected to provide a positive net present value (NPV) in US dollar terms. Based on relative purchasing power parity you are asked to estimate future spot rates over the next three years based on comparative inflation data.[1] With that data complete the table below.
S0 = Current Spot Rate in European Terms (Foreign currency per US dollar): USD to AUD 0.7636
E(St) = Expected Exchange Rate Spot Rate in t Years in European Terms (Foreign currency per US dollar) ?
hUS= Annual Inflation Rate in the United States
hFC = Annual Foreign Country Inflation Rate
I need help with section 2. Long Run Exchange. I've provided all of the data I was able to gather in bold for the Short Run Exchange Rate Risk. I've bold, it, and underlined the sect I need help with.