Question 2 (10 Marks) (a) You have just arrived back from Canada after a very successful business trip. You have managed to sell the designs to a new invention and you will be are paid in 9 months time. You expect to receive a total of CAD 100,000. You note that today the spot exchange rate is AUD1.15/CAD and the 9 months forward rate is AUD1.17/CAD. Today, this forward rate is also your expected spot exchange rate in 9 months time. Today, you can also buy a 9 months put option on the CAD with an exercise price of AUD1.1600/CAD for a premium of AUDO.09 per CAD. The 9 month interest rate is 4 % per annum in Australia and 6% per annum in Canada. REQUIRED: (i) Calculate the expected AUD premium of selling CAD 100,000 if you choose to hedge by a put option on the CAD. [2 Marks.] Give your answer to the nearest dollar. $ 10440 (ii) Calculate the future AUD receipt if you decide to hedge using a forward contract. [2 Marks.] Give your answer to the nearest dollar. $ 85470 (iii) Based on the concept of Interest Rate Parity, what should the forward rate be? [2 Marks.] Give your answer to 4 decimal places. AUD/CAD(b) The USD is trading at a spot price of AUD1.500/AUD. Further, assume that the premium of an American call option with an exercise price of AUD1.51/USD is 12.50 Australian cents and of an American put option with an exercise price of AUD1.5500/USD is 17.10 Australian cents. REQUIRED: (i) Calculate the intrinsic values of the call and put options. [1 + 1 = 2 Marks.] Give your answer in cents. For example, 1.23 means 1.23c, or $0.0123. PUT: cents CALL: cents (ii) Calculate the time value of the call and put options. [1 + 1 = 2 Marks.] Give your answer in cents. For example, 1.23 means 1.23c, or $0.0123. PUT: cents CALL: cents