On October 20, 2021, our company enters into a speculative forward contract with an exchange broker. The contract obligates our company to buy €636,000 on January 20, 2022, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.44:€1 (i.e., the forward rate on October 20, 2021, for settlement on January 20, 2022). The following table includes the spot rates and forward rates on October 20, 2021, December 31, 2021, and January 20, 2022. Date 20-Oct-21 31-Dec-21 20-Jan-22 Spot Rate (SUS = 1 EUR) $1.47 $1.40 $1.37 Select one: Forward Rate (SUS = 1 EUR) $1.44 What is the fair value of the derivative contract on December 31, 2021? a. $44,520 Asset b. $31,800 Liability c. None of the above. d. $31,800 Asset e. $44,520 Liability $1.39 $1.37
On October 20, 2021, our company enters into a speculative forward contract with an exchange broker. The contract obligates our company to buy €636,000 on January 20, 2022, while we lock in the $US we will pay for the Euros on that date at the forward rate of $1.44:€1 (i.e., the forward rate on October 20, 2021, for settlement on January 20, 2022). The following table includes the spot rates and forward rates on October 20, 2021, December 31, 2021, and January 20, 2022. Date 20-Oct-21 31-Dec-21 20-Jan-22 Spot Rate (SUS = 1 EUR) $1.47 $1.40 $1.37 Select one: Forward Rate (SUS = 1 EUR) $1.44 What is the fair value of the derivative contract on December 31, 2021? a. $44,520 Asset b. $31,800 Liability c. None of the above. d. $31,800 Asset e. $44,520 Liability $1.39 $1.37
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:On October 20, 2021, our company enters into a speculative forward contract with an exchange broker. The
contract obligates our company to buy €636,000 on January 20, 2022, while we lock in the $US we will pay
for the Euros on that date at the forward rate of $1.44:€1 (i.e., the forward rate on October 20, 2021, for
settlement on January 20, 2022). The following table includes the spot rates and forward rates on October
20, 2021, December 31, 2021, and January 20, 2022.
Date
20-Oct-21
31-Dec-21
20-Jan-22
Spot Rate
($US = 1 EUR)
$1.47
$1.40
$1.37
Select one:
What is the fair value of the derivative contract on December 31, 2021?
a. $44,520 Asset
b. $31,800 Liability
c. None of the above.
Forward Rate
($US = 1 EUR)
$1.44
$1.39
$1.37
d. $31,800 Asset
e. $44,520 Liability
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