Globalcorp makes a sale of goods to a foreign firm and will receive FC3 80,000 three months
Question:
(a) What is the net amount that Globalcorp will receive if the current spot rate is FC1.90 to the dollar?
(b) How much less is this than the amount Globalcorp would have received if the remittance had been made immediately instead of three months later?
(c) At what forward rate of exchange would the amount received by Globalcorp have been the same as what would have been obtained using the capital markets? Would Globalcorp have sold the FC forward short or long to hedge its position?
(d) If a speculator took the opposite position from Globalcorp in the forward market for FC, would the speculator sell long or short? If the speculator received a risk premium for holding this position, would this place the current forward rate in FC above or below the expected future spot rate in FC per dollar?
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Related Book For
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
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