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: Forward Exchange Rates 60 Days 0.5412 Spot Exchange Rates 30 Days 90 Days 0.5435 British pound (pound / dollar) 0.5376 0.5395 The British pound is selling at a in the forward market. Suppose you make a E 450,000 sale to a British customer who has 60 days to pay you in cash. The customer will pay you in British pounds, but your company is based in the United States, so you are most concerned with the dollar value of the payment. If the customer pays you E 450,000 today, how much is that worth in dollars? O $627,791 O $837,054 O $795,201 O $585,938 Assume that the forward market is correct and the 60-day forward exchange rate quoted in the newspaper today (above) is the spot exchange rate 60 days from now. If the customer waits the full 60 days and pays you £450,000, how much have you lost (in dollar terms) due to exchange rate fluctuations? O $4,733 O $5,568 $4,454 0 $4,176

Question
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:
Forward Exchange Rates
60 Days
0.5412
Spot Exchange Rates
30 Days
90 Days
0.5435
British pound (pound / dollar)
0.5376
0.5395
The British pound is selling at a
in the forward market.
Suppose you make a E 450,000 sale to a British customer who has 60 days to pay you in cash. The customer will pay you in British pounds, but your
company is based in the United States, so you are most concerned with the dollar value of the payment. If the customer pays you E 450,000 today,
how much is that worth in dollars?
O $627,791
O $837,054
O $795,201
O $585,938
Assume that the forward market is correct and the 60-day forward exchange rate quoted in the newspaper today (above) is the spot exchange rate 60
days from now. If the customer waits the full 60 days and pays you £450,000, how much have you lost (in dollar terms) due to exchange rate
fluctuations?
O $4,733
O $5,568
$4,454
0 $4,176

Image Transcription

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: Forward Exchange Rates 60 Days 0.5412 Spot Exchange Rates 30 Days 90 Days 0.5435 British pound (pound / dollar) 0.5376 0.5395 The British pound is selling at a in the forward market. Suppose you make a E 450,000 sale to a British customer who has 60 days to pay you in cash. The customer will pay you in British pounds, but your company is based in the United States, so you are most concerned with the dollar value of the payment. If the customer pays you E 450,000 today, how much is that worth in dollars? O $627,791 O $837,054 O $795,201 O $585,938 Assume that the forward market is correct and the 60-day forward exchange rate quoted in the newspaper today (above) is the spot exchange rate 60 days from now. If the customer waits the full 60 days and pays you £450,000, how much have you lost (in dollar terms) due to exchange rate fluctuations? O $4,733 O $5,568 $4,454 0 $4,176

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Exchange Rate Determination

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