Page 498 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx

Chapter 20

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

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