Fund Y invests in Asian equity markets. The portfolio holdings include Chinese stocks valued at RMB2 million. Currently, the relevant spot exchange rate is MYR/RMB 1.6120 (1 MYR = 1.6120 RMB). You...

Illustrate how the currency risk exposure can be hedged for Fund Y. Determine the payoff for the forward position if the exchange rate rises to MYR/RMB 1.6830 after 3 months.

Extracted text: Fund Y invests in Asian equity markets. The portfolio holdings include Chinese stocks valued at RMB2 million. Currently, the relevant spot exchange rate is MYR/RMB 1.6120 (1 MYR = 1.6120 RMB). You have decided to hedge against the currency risk by using a 3-month RMB/MYR forward contract with the same exchange rate as the spot.