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Home Finance An Australian organization has a ¥35,000,000 account payable in 3 months
Finance

An Australian organization has a ¥35,000,000 account payable in 3 months

jagguarpaw January 17, 2017 0 Comments

Question: An Australian organization has a ¥35,000,000 account…

An Australian organization has a ¥35,000,000 account payable in 3 months. The current Japanese yen (¥)/Australian Dollar (A$) spot exchange rate is ¥87.35/A$. The organization expects the spot rate in 3 months to be ¥80.45/A$. The 3-month forward exchange rate is ¥84.95/A$. The Australian Dollar (A$) 3-month borrowing rate is 4.00% per annum and the Australian Dollar (A$) 3-month investment rate is 6.00% per annum. The Japanese yen (¥) 3-month borrowing rate is 8.00% per annum and the Japanese yen (¥) 3-month investment rate is 4.00% per annum. The organization’s weighted average cost of capital is 9.70% per annum. The organization is considering three hedge positions: remaining unhedged, forward market hedge and money market hedge. Which of these hedge positions should the organization adopt?

000 000 account payable An Australian An Australian organization An Australian organization has An Australian organization has a ¥35 An Australian organization has a ¥35000000 An Australian organization has a ¥35000000 account An Australian organization has a ¥35000000 account payable in 3 An Australian organization has a ¥35000000 account payable in 3 months
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