An Australian company will receive payment of USD10 million a year from now. The current spot price for the USD is AUD1.50/USD and the one-year forward rate is AUD1.45/USD. The USD annual interest rate is 8%, the AUD annual interest rate is 9%.
Which of the following is TRUE?
Question 11Answer
a.
Money market hedge (borrowing AUD) is better than using the forward contract, granting AUD14.86 million a year from now.
b.
Money market hedge (borrowing USD) is better than using the forward contract, granting AUD15.14 million a year from now.
c.
Using the forward contract is better than money market hedge, granting AUD14.5 million a year from now.
d.
Money market hedge (borrowing USD) is better than using the forward contract, granting AUD14.86 million a year from now