Calculate the chinese yuan costs

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Reference no: EM133172372

Question - Sing Tao wants to import goods for 2.42 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.42 million by taking the money market hedging strategy.

TABLE 1

For Chinese yuan (CNY)


 Spot rate

 A$0.4748/CNY

 One-year forward rate

 A$0.5289/CNY

 One-year CNY deposit and borrowing rate

 7.14%

 One-year call options

 Exercise price = A$0.56

 Premium = A$0.03

 One-year put options

 Exercise price = A$0.53

 Premium = A$0.05



For Australian dollar (A$)


 Spot rate

 CNY2.7549/A$

 One-year forward rate

 CNY1.8838/A$

 One-year A$ deposit and borrowing rate

 4.72%

 One-year call options

 Exercise price = CNY2.14

 Premium = CNY0.2

 One-year put options

 Exercise price = CNY2.24

 Premium = CNY0.12

Required - Calculate the Chinese yuan (CNY) costs using the money market hedging strategy based on the information in Table 1.

Reference no: EM133172372

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