AussieGold Ltd., an Australian gold mining company, sells gold to U.S. clients in USD. The company has not hedged its gold price or foreign exchange risk. The current spot exchange rate is AUD$ 1.00 = USD$ 0.677 and the current gold spot price is USD$ 1522 per ounce. Which of the following scenarios represents the best possible outcome for AussieGold Ltd. over the next year? There is no change in the AUD/USD exchange rate and no change in the gold spot price. AUD strengthens relative to the USD, and the gold spot price falls. AUD weakens relative to the USD, and the gold spot price falls. AUD strengthens relative to the USD, and the gold spot price rises. AUD weakens relative to the USD, and the gold spot price rises.

AussieGold Ltd., an Australian gold mining company, sells gold to U.S. clients in USD. The company has not hedged its gold price or foreign exchange risk. The current spot exchange rate is AUD$ 1.00 = USD$ 0.677 and the current gold spot price is USD$ 1522 per ounce. Which of the following scenarios represents the best possible outcome for AussieGold Ltd. over the next year? There is no change in the AUD/USD exchange rate and no change in the gold spot price. AUD strengthens relative to the USD, and the gold spot price falls. AUD weakens relative to the USD, and the gold spot price falls. AUD strengthens relative to the USD, and the gold spot price rises. AUD weakens relative to the USD, and the gold spot price rises.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 42QA

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Busco has a foreign-currency denominated payable, itcan hedge by buying the foreign currency payableforward. The company can expect to eliminate theexposure without incurring costs as long as the forwardexchange rate is an unbiased predictor of the future spotrate. Busco exported an A380 to a UK company, and wasbilled the sum of £ 12,000,000 payable in three months.Currently the spot rate is $1.40/£ and the three-monthforward rate is $1.36/£.The three-month money marketinterest rate is 12% per annum in US and 8% per annumin UK.So the management of Busco decided to managethis transaction exposure and use the money markethedge to deal with this pound account payable. 1)Conduct a cash flow analysis of the money market hedge. Answer: Transaction Current cash flow (3-month) Cash flow at maturity 1 Borrow £ =£11,764,705.88 - £12,000,000 2 Buy $ spot with £ = $16, 470,588.24 - £11,764,705.88 0 3 Invest in US - $16, 470,588.24…
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		There is no change in the AUD/USD exchange rate and no change in the gold spot price.
		AUD strengthens relative to the USD, and the gold spot price falls.
		AUD weakens relative to the USD, and the gold spot price falls.
		AUD strengthens relative to the USD, and the gold spot price rises.
		AUD weakens relative to the USD, and the gold spot price rises.