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Suppose an investment manager expected to receive and invest $20,000,000 in 45 days. The manager wishes to convert those dollars to Euros. A dealer quotes a currency forward rate of €0.80 expiring in 45 days. Suppose that at the end of those 45 days, the rate is actually €0.76. The investment manager enters into the forward contract with a notional value of $20 million. The contract calls for cash settlement.

What is the forward contract payoff at expiration assuming the firm enters into the forward contract expiring in 45 days to buy Euros at €0.80?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92414593

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