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Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.   ?_0 (EUR/AUD)                                  0.60 Se (EUR/AUD)           0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate          E  = 0.62 Time to expiry             3 months   What is the expected spot rate?

- November 14, 2022 - Edwin Tunner

Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months.

 

?_0 (EUR/AUD)                                 

0.60

Se (EUR/AUD)          

0.50 (0.3) and 0.65 (0.7)

Premium on AUD call option

R = EUR0.02

Exercise exchange rate         

E  = 0.62

Time to expiry            

3 months

 

  1. What is the expected spot rate? 
  2. What is the expected value of payables in AUD under hedge
  3. Will the option to hedge be undertaken on the basis of expected spot rate? Explain. 
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