Spot and forward rates Anderson Australian Imports has agreed to purchase 15,000
ID: 2384255 • Letter: S
Question
Spot and forward rates
Anderson Australian Imports has agreed to purchase 15,000 cases of Australian beer for 3 million Australian dollars at today's spot rate. The firm's financial manager, Linda Wilson, has noted the following current spot and forward rates:
On the same day, Wilson agrees to purchase 15,000 more cases of beer in 3 months at the same price of 3 million Australian dollars.
a. What is the price of the beer in U.S. dollars if it is purchased at today's spot rate? Round your answer to the nearest cent.
$ _____
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? Round your answer to the nearest cent.
$ _____
c. If the exchange rate for the Australian dollar is 0.9182 to $1 in 90 days, how much will Wilson have to pay for the beer (in U.S. dollars)? Round your answer to the nearest cent.
$ _____
Dollar Australian Dollar/U.S.
Dollar Spot 1.0750 0.9302 30-day forward 1.0714 0.9334 90-day forward 1.0638 0.9400 180-day forward 0.9842 1.0161
Explanation / Answer
a.) As per the spot rate, 1 Australian Dollar = 1.075 USD
Therefore, 3,000,000 AUD = 3,000,000 *1.075 USD = 3,225,000 USD
Price of the beer (first 15,000 cases only) in U.S. dollars if it is purchased at today's spot rate = $3,225,000
b) 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 = 1.0638 * 3,000,000 = $3,191,400
c) If the exchange rate for the Australian dollar is 0.9182 to $1 in 90 days, the amount that Wilson will have to pay for the beer in U.S. dollars (assuming that payment is made in 90 days and Wilson did not enter into a forward contract) = 3,000,000/0.9182 = $3,267,262.03
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