PLEASE ANSWER ALL QUESTIONS!!! Spot and forward rates Anderson Australian Import
ID: 2717233 • Letter: P
Question
PLEASE ANSWER ALL QUESTIONS!!!
Spot and forward rates
Anderson Australian Imports has agreed to purchase 15,000 cases of Australian beer for 5 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 5 million Australian dollars.
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.
$
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.
$
If the exchange rate for the Australian dollar is 0.9123 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 1.0759 0.9295 30-day forward 1.0718 0.9330 90-day forward 1.0631 0.9406 180-day forward 0.9276 1.0781
Explanation / Answer
Home currency in this case is US $
Firm is purchasing cases of beer in Australian $. Hence there exists a Foreign exchange risk. To hedge this risk, firm has entered into a forward contact.
1. Price of the beer in U.S. dollars if it is purchased at today's spot rate:
Direct Quote : 1Australian $ = 1.0759 $
purchase 15000 cases@ 5000000 Australian $
Amount in US $=5000000/1.0759=4647272.05 $
2.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
90 days Forward Rate: Australian $=1.0631$
Amount in Australian $ = 5000000
Amount in $= 5000000/1.0631= 4703226.41ct
3.If the exchange rate for the Australian dollar is 0.9123 to $1 in 90 days Amount to be paid:
Exchange rate: $=0.9123 Australian $ (This is in Indirect quote. Hence it need t be converted to Direct Quote)
direct Quote: Australilan $= 1/0.9213= 1.0854$
Amount in $= 5000000/1.0854=4606596.65
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