Exchange Rates and Forward Contracts Analyses Essay

The appreciation of the Australian dollar would chance upon the investor in a positive manner. When the U. S. hearty invested in Australian dollar in the Australian specie market, consequently the returns would be in Australian dollar, there would be a gain on the military position of the U. S firm.This would mean that the return in U. S dollar would be great after Australian dollars appreciation. When the U. S firm has to repay the borrowed money in Japanese yen, it needs much U. S dollars than how much it should have been if the Japanese yen did not appreciate.This means a loss on foreign supplant transaction for the U. S firm. Price it immediately and deliver later is the underlying invention for forward contracts (Kolb, 2002) protecting parties from possible mass meeting rate fluctuations.Since Wolfpack expects British pounds to be appreciating, and it is invoicing in this currency, it is better NOT to hedge its exports with a forward contract. Pricing at the received exchange rate means lesser US dollar returns as compared to the apprehended British pounds that can purchase more U. S dollars for Wolfpack in its home country.