question $4$: Foreign currency risk

a$.$ You bought shares of Apple Inc. on NASDAQ in the US one year ago for USD $141.$ Today, the share price is USD $192.$ Over the year, Srilankan Rupee $($LKR$)$ depreciated against USD by $50\backslash \%.$ If you sell shares now, what is your profit or loss in LKR$?$

Formula: $\backslash ($ R$\_\{$L K R$\}=\backslash$left$(1+$R$\_\{$F O R$\}\backslash$right$)^\{*\}\backslash$left$(1+\backslash$Delta F X$\_\{$L K R F O R$\}\backslash$right$)-1\backslash )$

b$.$ Wesfarmers $($WES$),$ an Australian company recently purchased machinery from Germany, for which it has to pay EUR $250,000$ in two months on $10$ April $2024.$ WES also expects to receive CNY $950,000$ in two months' time in lieu of exports to China. In addition, you have the following information:

marks$)$

relevant spot rates are $0\mathrm{.}75$ EUR$/$AUD and $3\mathrm{.}05$ CNY$/$AUD$,$

interest rates are $2\mathrm{.}85\backslash \%$ in Australia, $2\mathrm{.}75\backslash \%$ in Germany and $3\mathrm{.}55\backslash \%$ in China

i$.$ What foreign exchange rate risk does WES face for each of the two transactions? $(1$ mark$)$

ii$.$ If WES hedges exchange rate risk using forward contracts, what will be the forward rates $($EUR$/$AUD and CNYIAUD$)$ based on interest rate parity conditions?

iii. Explain how WES can hedge foreign currency risk using forward contracts. Show relevant transactions and$/$or positions.

iv$.$ On $10$ April $2024,$ if spot rates are $0\mathrm{.}78$ EURIAUD and $2\mathrm{.}95$ CNYIAUD, what is the gain or loss if WES hedged using forward contracts.

Formula: $\backslash (\backslash$frac$\{$f$\}\{$s$\}=\backslash$frac$\{1+$i$\_\{$E U R$\}\}\{1+$i$\_\{$A U D$\}\}\backslash )$