Oporto is a new and upcoming food franchise in Australia, which has expanded its operations internationally.

Oporto currently needs to convert its profit earned in the U.S. market into Australian dollars. The following rates are quoted in various markets:

In New York AUD 1= USD 0.7600 - 0.7800

In Melbourne AUD 1 = USD 0.7700 – 0.7900

a)Identify and explain which of the above rates Oporto should use to exchange USD into AUD.

b)If Oporto has USD 10,000, how much AUD can it convert to given the rate it has accepted in the previous part, i.e. part a)?

c)Suppose Oporto will also need to buy USD with AUD in 3 months to pay its import bills. What are the up-side and down-side foreign exchange risks it may have to face?