Hedging using forward rates: Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP?
Hedging using forward rates: Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP?
Chapter22: International Financial Management
Section: Chapter Questions
Problem 7P
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Hedging using forward rates:
Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP?
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