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Compute the mark-to- market value of the following long forward NZD (New Zealand Dollar) contract. The...

Compute the mark-to- market value of the following long forward NZD (New Zealand Dollar) contract. The size of the long position is NZD 450,000 and the forward rate is Fn USD/NZD= 0.66; the current spot rate (at time of valuation) X0 USD/NZD= 0.64. The NZD and USD interest rate are: rNZD= 9% and rUSD= 3%; assume the contract matures in two years from now (so at t=2). Please calculate the forward price and mark to market value.

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Answer #1
Contract Size= NZD 450,000
Forward rate is USD/ NZD= 0.66
Spot rate is USD/NZD = 0.64
NZD interest rate is 9%
USD interest rate is 3%
Time = 2 years
Forward rate = Spot rate (USD/NZD) * (1+ Interest rate in USD)^2
(1+ Interest rate in NZD)^2
= 0.64 * (1 + 3%)^2
(1 + 9%)^2
= 0.57
Mark market Value as on date is 450,000 * 0.64 USD/NZD = USD 288,000
Mark market Value after 2 years would be 450,000 * 0.57 USD/NZD = USD 256,500
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