An FX Dealer Agrees to Supply $20 Million NZD in Exchange

question 106

Essay

An FX dealer agrees to supply $20 million NZD in exchange for AUD through a 150 day forward FX contract.The spot rate is AUD/NZD1.0987 and interest rates are 5% in New Zealand and 3.5% in Australia.a)Calculate the forward AUD/NZD rate using a 365-day-year for both countries.(Do not round your answer.)
b)Demonstrate how a FX dealer will ensure the supply of foreign currency required to settle a forward FX contract in a risk-free manner.

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Definitions:

Tolerance

The need of a person for increased amounts of an addictive substance to achieve the desired effect.

Psychoactive Medication

Drugs that affect mental processes and behavior by altering the brain's neurochemistry, used to treat psychological disorders.

Chronic Disorder

A chronic disorder is a long-standing or persistent health condition that may not have a cure, requiring ongoing management or treatment.

Symptom Control

involves managing the signs and symptoms of a disease or condition to improve the quality of life for the patient.