Answer to Question #120267 in Economics for Kgothatso

Question

The following are the spots and forward quote for R$ exchange rate on 12 February 2020


Spot bid R15.26 offer R15.29
Spot 1month forward bid R15.20 offer R15.27 March
Spot 3month forward bid R15.18 offer R15.27 may
Spot 6month forward R15.15 offer R15.25 August
Spot 9 month forward bid R15.10offer R15.20 November
A treasurer from mapere logistics know that the corporation will $2 million in 6 month and wants to hedge against the exchange moves . The bank agree that it will sell on the agreed date . A. if the spot price rose to R16 at the end the 6 month . how much is the forward contact worth ?
B. If another contact us agreed to by the corporation and back agrees to exchange $ 1 million at the end of 9 month while the spot price is R15 . how much is the forward contact worth ?.
C. Draw a graph indicating when a contract pays off from a long position and a short position

Answer 1

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