A US based IT firm required GBP 100000 in 180 days. The company feels that exchange rates are expected to fluctuate in the next 6 months. Their near accurate estimate based on a good quality research were as below: Current Rate of GBP USD 1.50 %3D 180 days forward rate for GBP = USD 1.48 Call premium USD 0.02 (strike price of USD 1.50 for 180 days) Interest Rates in London for deposits- 4.5% and for loans - 5.1% Interest Rates in New York for deposits -4.5% and for loans- 5.1% A fair estimate of exchange rate after 180 days is expected to be USD 1.44 with a
A US based IT firm required GBP 100000 in 180 days. The company feels that exchange rates are expected to fluctuate in the next 6 months. Their near accurate estimate based on a good quality research were as below: Current Rate of GBP USD 1.50 %3D 180 days forward rate for GBP = USD 1.48 Call premium USD 0.02 (strike price of USD 1.50 for 180 days) Interest Rates in London for deposits- 4.5% and for loans - 5.1% Interest Rates in New York for deposits -4.5% and for loans- 5.1% A fair estimate of exchange rate after 180 days is expected to be USD 1.44 with a
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 37QA
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