New york plans to hedge its exposure with forward contract

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Reference no: EM131995438

New York Co. has agreed to pay 10 million Australian dollars (A$) in two years for equipment that it is importing from Australia. The spot rate of the Australian dollar is $.65. The annualized U.S. interest rate is 4 percent regardless of the debt maturity. The annualized Australian dollar interest rate is 12 percent regardless of the debt maturity. New York plans to hedge its exposure with a forward contract that it will arrange today. Assume that interest rate parity exists.

Determine the amount of U.S. dollars that New York Co. will need in 2 years to make its payment. (Please Show Work)

Reference no: EM131995438

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