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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

SPOT AND FORWARD RATES Anderson Australian Imports has agreed to purchase 15,000 cases of Australian wine for 4 million Australian dollars at today’s spot rate. The firm’s financial manager, Linda Wilson, has noted the following current spot and forward rates:

  U.S. Dollar/ Australian Dollar Australian Dollar/ U.S. Dollar
Spot 0.9307 1.0745
30-day forward 0.9288 1.0767
90-day forward 0.9247 1.0814
180-day forward 0.9190 1.0881

On the same day, Wilson agrees to purchase 15 000 more cases of wine in 3 months at the same price of 4 million Australian dollars.

  1. a. What is the price of the wine in U.S. dollars if it is purchased at today’s spot rate?
  2. b. What is the cost in U.S. dollars of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate?
  3. c. If the exchange rate for the Australian dollar is 1 03 to $1 in 90 days, how much will Wilson have to pay for the wine (in U.S. dollars)?

a.

Summary Introduction

To determine: The price of the wine in US dollars at today’s spot rate.

Introduction:

Spot rate: Spot rate is the rate, which is used to make immediate settlement of the commodity and currency. Spot rate is also known as the spot price. Spot rate generally changes very frequently.

Explanation

Determine the price of the wine in US dollars at today’s spot rate

PriceofWine=[NumberofCasesinAUDA<

b.

Summary Introduction

To determine: The cost in USD if the payment is made in 90 days and the spot rate is equals today’s 90-day forward rate.

c.

Summary Introduction

To determine: The amount Person W have to pay for the wine in USD.

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