Hedge the risks involved in this transaction

Reference no: EM133223665

Question: Today is 1 September. Your business is based in China and you regularly purchase coal from Australia.

Your next purchase will be at the end of October in the quantity of 60,000 tonnes of coal. Your invoice will be denominated in Australian dollars.

Relevant prices for coal are:

spot price: AUD 300 per tonne

forward price with Oct delivery: AUD 320 per tonne
Relevant exchange rates between Australian dollars (AUD) and Chinese yuan (RMB) are:

spot exchange rate RMB 1.0000 = AUD 0.2000

forward rate with Oct delivery: RMB 1.0000 =AUD 0.2200

Required:

Your aim is to fully hedge the risks involved in this purchase of coal from Australia.

Describe the forward contract/s you will enter today to fully hedge the risks involved in this transaction.

Reference no: EM133223665

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