In December 2005, the spot exchange rate for the British Pound was $1.7188/ and the one-year...

 

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In December 2005, the spot exchange rate for the British Pound was $1.7188/£ and the one-year forward rate was $1.8675/£. Suppose that at the same time a US company Luther Industries entered into a contract to purchase goods with a price of £375,000 to be delivered in one year. Simultaneously Luther entered into a one-year forward contract to purchase £375,000. At the time the contract payment was due, the spot exchange rate was $1.7975/£. a. What is the amount of the payment in U.S. dollars that Luther Industries paid? b. Did Luther benefit from the forward contract? Explain. In December 2005, the spot exchange rate for the British Pound was $1.7188/£ and the one-year forward rate was $1.8675/£. Suppose that at the same time a US company Luther Industries entered into a contract to purchase goods with a price of £375,000 to be delivered in one year. Simultaneously Luther entered into a one-year forward contract to purchase £375,000. At the time the contract payment was due, the spot exchange rate was $1.7975/£. a. What is the amount of the payment in U.S. dollars that Luther Industries paid? b. Did Luther benefit from the forward contract? Explain.

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a To calculate the amount of the payment in US dollars that Luther Industrie... View the full answer