need help with a-c 3. [6 points] You have started an international business and

Question

need help with a-c

3. [6 points] You have started an international business and buy some of your products from China The Chinese company requests to be paid in Yuan (CNY). You recently placed an order costing 100,000CNY that requires payment in one month If the spot rate for CNY is currently $.16137/CNY, how much would you pay in $ today for the product? If the Yuan is devaluing against the dollar, would you want to hedge this situation? Why or why not? b. c. If the 30 day forward rate is $.16005/CNY, how much would you pay in $ for the products if you had purchased a 30 day futures contract and locked in the forward rate?

Explanation / Answer

a) We need to pay 100,000 CNY and for 1 CNY we need to pay 0.16137 dollars

Thus for 100,000 CNY we need to pay 100,000 * 0.16137 = 16137 Dollars

c) In case of forward contract we would pay, 100,000 * 0.16005 = 16005 Dollars

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