An Australian company has received USD in payment for goods exported.At the time of receiving the USD,the exchange rate is quoted as AUD/USD 0.5650.Rather than immediately converting the USD into AUD,the company decides to 'speculate' on a favourable movement in the exchange rate.In 'today + n days' the exchange rate is AUD/USD 0.5750.Which of the following statements is correct?
A) The company has taken a 'long' position in the USD.
B) The exporter company has made a loss on its FX position.
C) The opportunity cost of interest forgone will affect the profitability of the FX position.
D) All of the given answers are correct.

Question

Quizplus · Accepted Answer

The company has taken a 'long' position in the USD, as it expects the USD to appreciate against the AUD. The exporter company has made a gain on its FX position, as the AUD/USD exchange rate has moved in its favour. The opportunity cost of interest forgone will affect the profitability of the FX position, as the company could have earned interest on the USD if it had converted it into AUD immediately.

An Australian Company Has Received USD in Payment for Goods