Q3. Cold Storage Malaysia Sdn Bhd needs to pay AUD 575,000 in 2 months time for the purchase of fresh fruits and vegetables from an Australian supplier. Knowing that it is exposed to fluctuations in AUD/MYR exchange rate, Cold Storage is considering the following alternatives: Alternative 1: Do nothing, i.e. to wait until the AUD is due to be paid in 2 months' time and to buy the amount required at whatever spot rate at that time. Alternative 2: Hedge by entering into an FX forward contract. i. Explain what Cold Storage need to do if Alternative 1 were selected. ii. Again if Alternative 1 were to be used, calculate the amount in MYR that Cold Storage would pay in 2 months from now under the different AUD/MYR exchange rate scenarios at maturity by filling up the blank spaces in the following Table 1. Also compute potential gain or loss to Cold Storage in MYR in each scenario. If Spot Rate at Maturity is... 3.1000 3.1050 3.1100 3.1150 Table 1 Gain/ (Loss) MYR per AUD 0.0085 0.0035 (0.0015) (0.0065) Amount To Be Allocated in MYR 1,782,500 1,785,375 1,788,250 1,791,125

Q3. Cold Storage Malaysia Sdn Bhd needs to pay AUD 575,000 in 2 months time for the purchase of fresh fruits and vegetables from an Australian supplier. Knowing that it is exposed to fluctuations in AUD/MYR exchange rate, Cold Storage is considering the following alternatives: Alternative 1: Do nothing, i.e. to wait until the AUD is due to be paid in 2 months' time and to buy the amount required at whatever spot rate at that time. Alternative 2: Hedge by entering into an FX forward contract. i. Explain what Cold Storage need to do if Alternative 1 were selected. ii. Again if Alternative 1 were to be used, calculate the amount in MYR that Cold Storage would pay in 2 months from now under the different AUD/MYR exchange rate scenarios at maturity by filling up the blank spaces in the following Table 1. Also compute potential gain or loss to Cold Storage in MYR in each scenario. If Spot Rate at Maturity is... 3.1000 3.1050 3.1100 3.1150 Table 1 Gain/ (Loss) MYR per AUD 0.0085 0.0035 (0.0015) (0.0065) Amount To Be Allocated in MYR 1,782,500 1,785,375 1,788,250 1,791,125

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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