You own and operate a chain of electronic stores in Texas and you are considering expanding your inventory to include tablet work stations for small businesses. There is only one supplier of the brand of tablets you would like to stock in your store, and that firm is located in Mexico. You have researched the current spot and forward rates between the U.S. and Mexico, as indicated in Table-1:
| TABLE-1 |
Spot Rate |
30-Day Forward |
90-Day Forward |
180-Day Forward |
| U.S. Dollar/Peso |
1.7851 |
1.7052 |
1.8051 |
1.7555 |
|
|
|
|
|
| Peso/U.S. Dollar |
? |
? |
? |
? |
Questions:
- Complete the Peso/ U.S. Dollar row in Table-1 and explain your methodology.
- If you agree to pay 2-million pesos for 100,000 tablets at today's spot rate, how much would you pay in U.S. dollars?
- If you agree to pay 2-million pesos but wait 180 days and end up paying the 180-Day forward rate, how much would you be paying for the 100,000 tablets, in U.S. Dollars?
- Your competitors sell the tablet for $41.20 and you must mark you product up from cost by at least 20% to earn a minimal profit, should you buy the tablets today? Explain your answer.
- Should you wait to buy the tablets in 30 days at the current 30-day forward rate? Explain your answers.