Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.
Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad. Current exchange rates in the home country of Gotohell are: Exchange rate : Euros Per dollar Spot : 4.1780-4.2080 6-month forward : 4.2302- 4.2606 12-month forward : 4.2825-4.3132 Required: a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate. b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.
ChapterP2: Part 2: Exchange Rate Behavior
Section: Chapter Questions
Problem 1Q
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Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad.
Current exchange rates in the home country of Gotohell are:
Exchange rate : Euros Per dollar
Spot : 4.1780-4.2080
6-month forward : 4.2302- 4.2606
12-month forward : 4.2825-4.3132
Required:
a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate.
b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.
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