An Australian exporter has despatched a consignment to the USA and expects to receive payment of USD 250 000 in three months' time.The company wishes to hedge part of its exposure to the USD,and enters into a forward exchange contract with its bank,based on the amount USD 125 000.Based on today's data (below),what amount in AUD will the company receive in three months' time?
Spot rate:
AUD/USD 0.7345-50
Three-month forward rate:
AUD/USD 0.7430-35
A) AUD 340 136.05
B) AUD 340 367.60
C) AUD 336 473.76
D) AUD 336 247.48

Question

Quizplus · Accepted Answer

The company will receive AUD 336 247.48 in three months' time. This is calculated by dividing the hedged amount (USD 125,000) by the three-month forward rate (0.7435, using the rate at which the bank will buy USD), resulting in AUD 168 123.74. The unhedged amount (USD 125,000) is converted at the spot rate (0.7350, using the rate at which the bank will buy USD), resulting in AUD 168 123.74. The total received is the sum of these two amounts.

An Australian Exporter Has Despatched a Consignment to the USA