BSB119 Lecture Notes - Chilean Peso, Forward Exchange Rate, Driza-Bone
Document Summary
This topic, historically does come up in the final exam. Question 2 -4 = best exam practice questions: you are assigned the duty of ensuring the availability of 500,000 chilean pesos for payment that is scheduled for next month. Your company possesses australian dollars ; you identify the spot and forward and exchange rates. Spot exchange rate: current exchange rate in the market. Forward exchange rate: is the exchange rate calculated today based on the future exchange rate in a certain defined period eg in 3/6 months time. Very risk: look at the trend in the market. Based on normal forecasts in the market, exchange rate will be x in y days: therefore, two parties agree in a certain period of time that company a pays. Company b x amount of money: company b then know how much they are selling/buying the product for everyone knows. Eliminates the risk: this is the process of hedging covers yourself.
