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You are financial analyst for a large local company with suppliers in Australia and buyers in Caricom

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You are financial analyst for a large local company with suppliers in Australia and buyers in Caricom. The Company has SA5 million in payables to an Australian supplier due on June 30 and $US3 million due from Caricom sales on June 15. There are no $A receivables. The spot rate of the $A is $US 0.70 and the price on a June futures contract is $US0.72. The company can borrow and lend in any currency. A Identify the currency risk facing the company and explain how your company can hedge on the cash market. (5 marks) B Assume that the $A depreciated two days after the hedge in (A) above so that it is worth $US 0.68. How will this affect the firm's cash flows? (3 marks) ? Your manager is of the view that the $A is likely to appreciate in the next month. Explain how you can hedge the currency risk of the $A payables without giving up the gains of a favourable exchange rate movement (3 marks)