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SPOT AND FORWARD RATES Arvin 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, Sarah Vintnor, has noted the following current spot and forward rates. U.S. Dollar/Australian Dollar Australian Dollar/U.S. Dollar Spot 0.7930 1.2610 30-day forward 0.7927 1.2615 90-day forward 0.7921 1.2625 180-day forward 0.7911 1.2640 On the same day, Vintnor agrees to purchase 15,000 more cases of wine in 3 months at the same price of 4 million Australian dollars. a. What is the price of the wine in U.S. dollars if it is purchased at today’s spot rate? b. What is the cost in U.S. dollars of the second 15,000 cases it payment is made in 90 days and the spot rate it that time equals today's 90-day forward rate? c. If the exchange rate for the Australian dollar is 1.20 to $1 in 90 days, how much will Vintnor have to pay for the wine (in U.S. dollars)?

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 19, Problem 13P
Textbook Problem

SPOT AND FORWARD RATES Arvin 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, Sarah Vintnor, has noted the following current spot and forward rates.

  U.S. Dollar/Australian Dollar Australian Dollar/U.S. Dollar
Spot 0.7930 1.2610
30-day forward 0.7927 1.2615
90-day forward 0.7921 1.2625
180-day forward 0.7911 1.2640

On the same day, Vintnor 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 it payment is made in 90 days and the spot rate it that time equals today's 90-day forward rate?
  3. c. If the exchange rate for the Australian dollar is 1.20 to $1 in 90 days, how much will Vintnor have to pay for the wine (in U.S. dollars)?

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Chapter 19 Solutions

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