Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
ID: 2762432 • Letter: A
Question
Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
Spot rate $0.9477
30-day forward rate $0.9519
90-day forward rate $0.9569
120-day forward rate $0.9602
a) What is the Canadian dollar value of one New Zealand dollar in the spot market?
b) Suppose you issued a 90-day forward contract to exchange 100,000 New Zealand dollars into Canadian. dollars. How many Canadian dollars are involved?
c) How many New Zealand dollars can you get for one Canadian dollar in the spot market?
d) If the spot rate for the US dollar is $1.0915, what is the USD price for one NZD?
Explanation / Answer
Spot rate = $0.9477
a.
Since spot rate is 0.9477, so Canadian dollar value of one New Zealand dollar in the spot market is $0.9477.
b.
90 days forward rate = 0.9569
90-day forward contract to exchange 100,000 New Zealand dollars into Canadian Dollars is calculated below:
Value of Canadian dollar = 100,000 × 0.9569
= $956,900
Hence, 90-day forward contract to exchange 100,000 New Zealand dollars into Canadian Dollars is $956,900.
C.
New Zealand dollar value of one Canadian dollar in the spot market is calculated below:
New Zealand dollar value of one Canadian dollar = 1/0.9477
=1.05519
Hence, New Zealand dollar value of one Canadian dollar in the spot market is $1.05519.
c.
Spot rate =NZ$1.0915 per US dollar
New Zealand dollar value of one US dollar in the spot market is calculated below:
New Zealand dollar value of one US dollar = 1/1.0915
=NZ $0.9162
Hence, New Zealand dollar value of one US dollar in the spot market is NZ $0.9162.
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