Question

If the spot rate was $1.0010/C$ and the 90-day forward rate was $1.0108/C$, how much more (in U.S. dollars) would you receive by selling C$1,945,000 at the forward rate than at the spot rate?

Additional revenue $

Answer 1

Ans.

First, determine the US dollar equivalent of the C$ using the spot rate:

• US dollar equivalent at spot rate = Total amount of C$ x spot rate
• US dollar equivalent at spot rate = C$1,945,000 x $1.0010
• US dollar equivalent at spot rate = $1,946,945

Next, let us determine the US dollar equivalent of the C$ using the 90-day forward rate

• US dollar equivalent at 90-day forward rate = Total amount of C$ x 90-day forward rate
• US dollar equivalent at 90-day forward rate = C$1,945,000 x $1.0108
• US dollar equivalent at 90-day forward rate = $1,966,006

Now, the difference is computed as:

• Difference = US dollar equivalent at 90-day forward rate - US dollar equivalent at spot rate
• Difference = $1,966,006 - $1,946,945
• Difference = $19,061

Additional Revenue = $ 19,061