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Calculating Forward contract value for foreign Exchange

Today spot rate £ 1 = US $ 2
3-month forward rate £ 1 = US $ 2.10
After 3-month spot rate £ 1 = US $ 2.20

US importer needs £ 1million payment 3-months later, and he sign a forward contract today

a. How much (US$) does the importer need to pay after 3 months?

b. How much is the cost of hedge?

c. Better sign a forward contract today or not sign a forward contract today? Why?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M928497

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