A New Zealand-based business has exported goods to Canada and will receive payment of CAD 620.000...
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A New Zealand-based business has exported goods to Canada and will receive payment of CAD 620.000 in three months' time. The spot exchange rate and the 3-month annualised money market rate are: 1 Canadian dollar traded at NZ$1.076 3 month New Zealand money market rate: 2.83% 3 month Canadian money market rate: 1.17%. a) Explain the exchange rate risk to which New Zealand companies are exposed. b) Explain the terms of a money market hedge undertaken by the New Zealand company to fix the exchange rate of CAD 620.000. Specify the fixed forward rate provided by this hedge.. c) Assume that the actual spot exchange rate after three months is NZ$1.1200. Explain whether the forward rate is favourable to the company and assess whether it is correct to enter into a forward exchange.. A New Zealand-based business has exported goods to Canada and will receive payment of CAD 620.000 in three months' time. The spot exchange rate and the 3-month annualised money market rate are: 1 Canadian dollar traded at NZ$1.076 3 month New Zealand money market rate: 2.83% 3 month Canadian money market rate: 1.17%. a) Explain the exchange rate risk to which New Zealand companies are exposed. b) Explain the terms of a money market hedge undertaken by the New Zealand company to fix the exchange rate of CAD 620.000. Specify the fixed forward rate provided by this hedge.. c) Assume that the actual spot exchange rate after three months is NZ$1.1200. Explain whether the forward rate is favourable to the company and assess whether it is correct to enter into a forward exchange..
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Answer rating: 100% (QA)
a Exchange rate risk is the risk that the value of a currency will change relative to another currency This risk is particularly relevant to New Zeala... View the full answer
Related Book For
College Mathematics For Business Economics, Life Sciences, And Social Sciences
ISBN: 978-0134674148
14th Edition
Authors: Raymond Barnett, Michael Ziegler, Karl Byleen, Christopher Stocker
Posted Date:
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