An australian company importer buys wine from california us, Ask an Expert

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An Australian company (importer) buys wine from California (US). The next order isworth $2 millions and the payment is due in 180 days. The spot rate is AUD/USD1.30. The importer negotiates a 180-day forward rate with an Australian bank atF=AUD/USD 1.32.

(a) Is the importer buying or selling U.S. dollars forward?

(b) Is the U.S dollar quoted at a premium or at a discount relative to the Australian dollar in the forward market?

On delivery date, the importer discovers that the U.S dollar appreciated relative to theAustralian dollar.

(a) Did the importer benefit from an implicit gain on the forward contract or suffer aloss? Why?

(b) Assume the spot rate in 180 days is AUD/USD 1.35. Quantify the implicitgain/loss on the forward contract (in percent).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92835880

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