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Chapter 13

Question 10

Forward exchange contract

A UK importer expects to pay $150,000 in 3 months and enters into a forward
exchange contract with a spread of $1.22 – $1.24 = £1.

Calculate in £ how much will be paid to settle the contract.

$ to the £ – look to what the bank does with $

UK company will need to buy $ from the bank, meaning the bank is selling
them. The bank sells low so the appropriate rate is $1.22 = £1

$150,000/1.22 = £122,951

Illustrations and further practice

Now work through illustration 3 and try TYU question 7 from Chapter 13.

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