Question

b. Compare and contrast Spot exchange and Forward exchange rates. Discuss how a company may use...

b. Compare and contrast Spot exchange and Forward exchange rates. Discuss how a company may use a forward exchange rate contract to facilitate an international purchase transaction.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Spot exchange rate is the exchange rate quoted for a foreign currency for exchanging the currencies today. It is the price of one currency in terms of another, if they are exchanged today.

On the other hand, forward exchange rate is the exchange rate quoted for a foreign currency for exchanging the currencies in the future. It is the price of one currency in terms of another, if they are exchanged at a specified time in the future.

A company which has to purchase internationally, has to pay the seller in their currency. The company will do this by selling its home (domestic) currency, and buying the foreign currency. If the payment is to be done in 3 months, the company can enter into a forward currency contract to lock-in the exchange rate. Thus, it can hedge its foreign currency risk.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Compare and contrast Spotexchange and Forwardexchange rates. Discuss how a company may use a forward exchange...
Compare and contrast Spotexchange and Forwardexchange rates. Discuss how a company may use a forward exchange rate contract to facilitate an international purchase transaction.
3. Trading in foreign exchange What are spot rates and forward rates? Suppose you open the...
3. Trading in foreign exchange What are spot rates and forward rates? Suppose you open the newspaper today and observe the following indirect exchange rate quotations for the British pound: Spot Exchange Rates Forward Exchange Rates 30 Days 60 Days 90 Days British pound (pound / dollar) 0.5415 0.5433 0.5445 0.5467 The British pound is selling at a   in the forward market. Suppose you make a £ 600,000 sale to a British customer who has 60 days to pay you...
The forward foreign exchange rate A. Determines the future spot exchange rate. B. Is unaffected by...
The forward foreign exchange rate A. Determines the future spot exchange rate. B. Is unaffected by changes in interest rates. C. Is the ratio of equivalent spot amounts in each currency compounded to the forward maturity at the respective currencies' spot rates. D. Is the rate that ensures that future expected purchasing power will be in parity.
3. Trading in foreign exchange What are spot rates and forward rates? Purple Panda Importers, a...
3. Trading in foreign exchange What are spot rates and forward rates? Purple Panda Importers, a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥689 million, but the Japanese firm has 60 days before it must make the payment to Purple Panda Importers The spot exchange rate is ¥128.75 per dollar, and the 60-day forward rate is ¥133.45 per dollar. Is the yen selling at a premium or at...
3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc.,...
3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥675 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is ¥129.20 per dollar, and the 60-day forward rate is ¥134.56 per dollar. Is the yen selling at a premium...
Explain the difference between a spot exchange rate and a 90 day forward rate? What is...
Explain the difference between a spot exchange rate and a 90 day forward rate? What is the advantage of forward rates over spot rates? Why does is cost more to use a forward rate?
Suppose that USD/sterling spot and forward exchange rates are as follows: Spot 1.5580 90-day forward 1.5556...
Suppose that USD/sterling spot and forward exchange rates are as follows: Spot 1.5580 90-day forward 1.5556 180-day forward 1.5518 What opportunities are open to an arbitrageur in the following situations? (a) A 180-day European call option to buy £1 for $1.52 costs 2 cents. (b) A 90-day European put option to sell £1 for $1.59 costs 2 cents.
What is the difference between a spot foreign exchange rate and a forward foreign exchange rate?...
What is the difference between a spot foreign exchange rate and a forward foreign exchange rate? How could an Indonesian exporter use the forward rate to hedge foreign exchange risk?
A Japanese EXPORTER has a €1,000,000 receivable due in one year. Spot and forward exchange rate...
A Japanese EXPORTER has a €1,000,000 receivable due in one year. Spot and forward exchange rate data is given in the table:    Spot Rate 1-year forward rate Contract Size $1.20 =€1.00 $1.25= €1.00 €62.500 $1.00 =¥100 $1.20= €120 ¥12,500,000 The one-year risk free rates are i$ = 4.03%; i€ = 6.05%; and i¥ = 1%. Detail a strategy using forward contract that will hedge exchange rate risk. Group of answer choices Sell €1m forward using 16 contracts at the...
b) Suppose that the current spot exchange is: 1 BP (British pound) = $1.21. Use the...
b) Suppose that the current spot exchange is: 1 BP (British pound) = $1.21. Use the following interest rates. The interest rate is 8% in the US market (home market). The interest rate is 3% in the UK market (foreign market). i) Find the forward exchange rate when the IRP holds. ii) Assume that the IRP holds (this means you use the IRP forward exchange rate found above). When you invest $10,000 in the UK market and at the same...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT