Suppose That Two Counterparties, a and B, Enter a Three-Month

Multiple Choice

Suppose that two counterparties, A and B, enter a three-month forward contract on 1 January, whereby A sells USD1 million at a forward rate of AUD/USD 1.7662. On 1 March, A decides it no longer needs to sell USD1 million on 31 March, so it enters a one-month forward contract to buy USD1 million on 31 March at a forward rate of AUD/USD 1.8000 from counterparty C. Calculate the net cost to counterparty A, before transaction costs.

A) 0.0338
B) -AUD33 800
C) AUD33 800
D) AUD1.8 million