Assume an FI Sells A$100 Million for Euros at the Spot

Multiple Choice

Assume an FI sells A$100 million for euros at the spot exchange rate today and receives A$100 million/ A$1.15 = €86.96 million.Further assume that the FI immediately lends the €86.96 to a German customer at 12% per annum for one year.Which of the following statements is true regarding this transaction?

A) The FI can sell the expected principal and interest proceeds from the euro loan forward for Australian dollars today at today's forward rate for one-year delivery to hedge its position.
B) Assuming the FI decides to enter into a forward contract on its FX exposure at the current forward one-year exchange rate between Australian dollars and euros at A$1.10/€1, then it means that the buyer of the forward contract promises to pay €86.96 * (A$1.10/€1) = A$95.57 million to the FI.
C) At maturity, the German borrower repays the loan to the FI plus interest in dollars, that is, (€86.96 * 1.12) * (A$1.15/€1) = A$112.00 million.
D) All of the listed options are correct.