5 Hedge currency risks Today is 1 September and the spot exchange rate AUD 1.00 = NZD 1.22. That is, one AUD buys you NZD 1.22. You have no underlying position/commitments in NZD but will merely speculate on exchange rate movements. The six-month forward rate for AUD 1.00 = NZD 1.18. If you want to speculate on the NZD strengthening relative to the AUD, will you take a long or short forward position in NZD? (long or short) On maturity of this forward contract in six-month's time, the spot exchange rate is 1.05 (i.e. AUD 1.00 buys NZD 1.05). You close out the forward position with a new transaction equal in magnitude (NZD 100,000) and opposite in sign to your original transaction in part b). What is your net position on the forward contracts? $
5 Hedge currency risks Today is 1 September and the spot exchange rate AUD 1.00 = NZD 1.22. That is, one AUD buys you NZD 1.22. You have no underlying position/commitments in NZD but will merely speculate on exchange rate movements. The six-month forward rate for AUD 1.00 = NZD 1.18. If you want to speculate on the NZD strengthening relative to the AUD, will you take a long or short forward position in NZD? (long or short) On maturity of this forward contract in six-month's time, the spot exchange rate is 1.05 (i.e. AUD 1.00 buys NZD 1.05). You close out the forward position with a new transaction equal in magnitude (NZD 100,000) and opposite in sign to your original transaction in part b). What is your net position on the forward contracts? $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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H2.
Transcribed Image Text:5 Hedge currency risks
Today is 1 September and the spot exchange rate AUD 1.00 = NZD 1.22. That is, one AUD buys you NZD 1.22.
You have no underlying position/commitments in NZD but will merely speculate on exchange rate movements.
The six-month forward rate for AUD 1.00 NZD 1.18.
If you want to speculate on the NZD strengthening relative to the AUD, will you take a long or short forward
position in NZD?
(long or short)
On maturity of this forward contract in six-month's time, the spot exchange rate is 1.05 (i.e. AUD 1.00 buys NZD
1.05). You close out the forward position with a new transaction equal in magnitude (NZD 100,000) and opposite
in sign to your original transaction in part b). What is your net position on the forward contracts? $
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