Design a money market hedge

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An Australian exporting company will receive 4m USD in 6 months' time from sales. The current spot rate is: AUD / USD 0.7066 / 0.7073. Australian interest rates are currently at 1.5% p.a. and U.S. interest rates are at 0.5% p.a. The net interest rate spread in both countries is 3.5% (read this as the borrowing rates are 3.5% higher than the given investment rates above). Design a money market hedge which will remove the FX risk faced by the company, yet not altering the timing of the payment. Clearly show the AUD cash flow in the future.

Reference no: EM132656374

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