Assume interest rate parity (IRP). The nominal one-year rate in the USA will be 15%, and in Australia it will be 11% for one year. The Australian dollar (AUD) SPOT exchange rate is 0.45 USD/AUD. AUD 15 million will be required in one year. A one-year Australian dollar (AUD) forward contract is purchased today. How many US dollars (USD) will be used in one year to fulfill your forward contract? The alternatives are a. Premium of 3.603604%, FWD exchange rate 0.466216216 AUD/USD and $6,993,243.24 USD to be needed. b. Premium of 3.603604%, FWD exchange rate 0.466216216 USD/AUD and $6,993,243.24 to be required.  c. Discount of 3.478261%, FWD exchange rate 0.434347826 AUD/USD and $6,515,217.39 to be required. d. Discount of 3.478261%, FWD exchange rate 0.434347826 USD/AUD and $6,515,217.39 to be required.

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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.