Anderson Australian Imports has agreed to purchase 15,000 cases of Australian wine for 4 million Australian dollars
Question:
Anderson Australian Imports has agreed to purchase 15,000 cases of Australian wine for 4 million Australian dollars at today's spot rate. The firm's financial manager, Linda Wilson, has noted the following current spot and forward rates:
U.S. Dollar/Australian Dollar
Australian Dollar/U.S. Dollar
Spot...................0.9307........................1.0745
30-day forward......0.9288........................1.0767
90-day forward......0.9247........................1.0814
180-day forward....0.9190.........................1.0881
On the same day, Wilson agrees to purchase 15 000 more cases of wine in 3 months at the same price of 4 million Australian dollars.
a. What is the price of the wine in U.S. dollars if it is purchased at today's spot rate?
b. What is the cost in U.S. dollars of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today's 90-day forward rate?
c. If the exchange rate for the Australian dollar is 1 03 to $1 in 90 days, how much will Wilson have to pay for the wine (in U.S. dollars)?
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
Fundamentals of Financial Management
ISBN: 978-1285867977
14th edition
Authors: Eugene F. Brigham, Joel F. Houston