You are a price maker running the AUD/USD options book for your bank. Your customer is an importer of electrical consumer goods who makes payment in USD, but they do not have any USD available. Your customer is required to hedge their FX risk on an upcoming exposure. They are VERY bearish on the AUD/USD rate. Unhedged, a weaker AUD/USD rate is ? to their profitability. Given their outlook for the currency, the most appropriate hedging stratey would be to:?

Your organization has a transaction risk related to USD sales receipts. The organization's risk policy requires that all foreign currency exposures are hedged. Hedging a foreign currency transaction exposure means that you have:Group of answer choicesReduced the foreign currency risk appetiteReduced the standard deviation of the foreign currency.Reduced the probability of foreign currency fluctuationsReduced the consequence of foreign currency fluctuations

You are a price maker. The bid for the AUD/USD is 0.7463. What price do you need to show to attract a customer wanting to sell AUD?

Question 1 (12 marks) Imagine you are the treasurer of a NZ company exporting dairy products to the United States. All revenues are received in USD and all other expenses (e.g., R&D costs, costs of employees etc.) are incurred in NZ dollars. Required: (a) Discuss whether you need to hedge the foreign exchange risk and factors you need to consider when designing contracts to hedge the risks. (6 marks) (b) If the company is able to raise the price of its product in USD if NZD appreciates without affecting the sales volume, how would you adjust your recommendation in part (a) and sell your strategy to other executives? (6 marks) Provide a typewritten answer to (a) and (b) in no more than one-half (1/2) of a page in total. Hint: If the company is able to raise the price of its product in USD if NZD appreciates, what does it tell you about the company’s foreign exchange exposure? Which derivative security (securities) could be used to hedge this risk? There is no model answer to this question, you just have to provide reasoned explanations.

By skewing the spot rate for AUD/USD, what price is needed to attract a customer wanting to sell USD if it is currently trading at 0.7534/38? (Assume infinite liquidity)

Green Growers is aware of the potential for currency fluctuations to impact its profitability. Which of the following actions would be the LEAST effective in mitigating the risk of currency fluctuations?Group of answer choicesImplementing currency hedging strategies to lock in exchange rates.Focusing on exporting to countries with strong, stable currencies.Negotiating contracts with international customers in US dollars.Diversifying its export markets to reduce dependence on a single currency.