ABC Company, an Australian firm, has a USD 385 million payable in one year. ABC is concerned that the exchange rate might change adversely. It enters into a risk sharing arrangement with its supplier. The AUD/USD base rate is set at 0.77. There is a neutral zone of 0.693 to 0.847. Outside of the neutral zone, the parties split the exchange rate change equally. Suppose the final exchange rate is 0.9625, how much must ABC pay?  Select one: a. 318.6837 million b. 334.6179 million c. 286.8154 million d. 22.2337 million e. 370.5625 million

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.