Answer Happy

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?
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%