Question

An Australian exporter WA Co. will receive 5.34 million Chinese yuan (CNY) from a Chinese importer Sing Tao in one year. WA Co. analyses the different hedging strategies (forward, money market and options) using the market information in the following Table 1 to minimise its exchange rate risk for the Australian dollar (A$) cash flow.

TABLE 1
For Chinese yuan (CNY)
Spot rate	A$0.4696/CNY
One-year forward rate	A$0.5454/CNY
One-year CNY deposit and borrowing rate	8.13%
One-year call options	Exercise price = A$0.53
	Premium = A$0.03
One-year put options	Exercise price = A$0.55
	Premium = A$0.05
For Australian dollar (A$)
Spot rate	CNY3.0462/A$
One-year forward rate	CNY1.8687/A$
One-year A$ deposit and borrowing rate	4.60%
One-year call options	Exercise price = CNY2.47
	Premium = CNY0.18
One-year put options	Exercise price = CNY2.19
	Premium = CNY0.14

Calculate the A$ proceeds from the forward hedging strategy based on the information in Table 1.

(enter the whole number without sign and symbol).

Answer:

Question 2

Calculate the A$ proceeds for the money market hedging strategy using the market information in Table 1.

(enter the whole number without sign and symbol)

Answer:

Question 3

Calculate the minimum A$ proceeds for the options hedging strategy based on the market information in Table 1.

(enter the whole number without sign and symbol)

Answer:

Question 4

After analysing the different hedging strategies, WA Co. found that none of these hedging strategies (forward, money market and options) provides the expected A$ proceeds and wants to receive A$ rather than CNY in one year.  Therefore, WA Co. proposed Sing Tao to pay WA Co. A$2.48 million instead of the initial an agreed amount of CNY5.34 million. As an importer before signing a new agreement, Sing Tao analyses the different hedging strategies using the market information in Table 1 to minimise its exchange rate risk for the payment of A$2.48 million.

What is the CNY costs for the forward hedging strategy based on the information in Table 1?

(enter the whole number without sign and symbol)

Answer:

Question 5

What is the CNY costs for the money market hedging strategy based on the information in Table 1?

(enter the whole number without sign or symbol)

Answer:

Question 6

Calculate the maximum CNY costs for the options hedging strategy using the information in Table 1.

Answer:

Answer 1

Answer as whole no

Q1 = 29,12,436

Q2= 24,25,799

Q3= 26,57,700

Q4= 46,34,376

Q5= 78,09,520

Q6= 70,54,690