Your start-up company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you $110,000 in three months’ time when the installation will occur. However, it insists on paying in Polish zloty (PLN). You don’t want to lose the deal (the company is your first client!), but are worried about the exchange rate risk. In particular, you are worried the zloty could depreciate relative to the dollar. You contact Fortis Bank in Poland to see if you can lock in an exchange rate for the zloty in advance.

a. You find the following table posted on the bank’s Web site, showing zloty per dollar, per euro, and per British pound:

What exchange rate could you lock in for the zloty in three months? How many zloty should you demand in the contract to receive $110,000?

b. Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in the United States at the time? How did Polish rates compare to euro or pound rates? Explain.

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purchase sale purchase sale purchase sale 1 week 3.1419 3.1804 1 month 2 months USD 3.1379 3.1383 3.1785 3.1737 EUR 2 weeks 3.7804 3.7814 3.8214 3.8226 3.7836 3.8254 GBP 5.5131 5.5131 5.5112 5.5750 5.5750 3.1392 3.1742 3.7871 3.8298 5.5078 5.5735 5.5705 3 months 3.1316 3.1701 3.7906 3.8342 5.5048 5.5681