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1. Lee Hup corporation will pay 678,000 New Zealand dollars (NZD) in three months. The...

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Finance

1. Lee Hup corporation will pay 678,000 New Zealand dollars (NZD) in three months. The company expects that in three months the NZD would be trading at USD 2.3977 and the quoted 90-forward rate is USD 2.7296/NZD. If Lee Hup corporation wants to hedge its transaction exposure with the forward contracts, it will:

a.pay NZD 1,850,668.80 in 90 days

b.pay NZD 1,850,668.80 today

c.pay NZD 1,625,640.60 in 90 days

d.pay NZD 1,625,640.60 today

2. Mr. Hemsworth is the CFO of Thunder Inc. and he is responsible for managing transaction exposure. The company will receive 258,000 Australian dollars from a partner for licensing fees in 30 days. He came up with the probability of the exchange rates of the U.S. dollar per Australian dollar (see the table below). If an Australian dollar sells for 2.234 U.S. dollars and the 30 days forward rate is USD 2.4894 per AUD, what is the probability of the forward hedging to outperform the unhedged positions?

image

a.19%

b.41%

c.31%

d.81%

Possible Spot Rate in 30 Days Probability 2.2085 19% 2.5846 22% 28% 2.7228 2.7676 31%

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