Task 2-2 (10 points) Your Germany based company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you 105000 in three months time when the installations start. 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 EUR. You contact HSBC Bank in Poland to see if you can lock in an exchange rate using forward contracts for the zloty in advance. You find the following table posted on the bank's web site, showing zloty per dollar, per euro, and per British pound. Spot 2 weeks 1 month 2months 3months rate forward forward forward forward USD Purchase 3.1433 3.1429 3.1419 3.1390 3.1361 Sales 3.1764 3.1761 3.1755 3.1735 3.1711 EUR Purchase 3.7804 3.7814 3.7836 3.7871 3.7906 Sales 3.8214 3.8226 3.8254 3.8298 3.8342 GBP Purchase 5.5142 5.5131 5.5112 5.5078 5.5048 Sales 5.5763 5.5750 5.5735 5.5705 5.5681 (a) What exchange rate could you use to lock in for the zloty in three months? The exchange rate is (round to four decimals) (b) How many zloty should you demand in the contract to receive 105000? The amount is zl. (round to integer zloty) (c) Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in Germany for the same period at the time? (hint: use the IRP equation FPLN/EUR/SPLN/EUR=(1+rPLN)/(1+rEUR) to compare the two interest rates) Because PLN are needed to purchase each EUR for contracts that expire later, the Polish than that in Germany. (fill in "more", "fewer", "higher", "lower" in the interest rate must be fields where appropriate) Task 2-2 (10 points) Your Germany based company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you 105000 in three months time when the installations start. 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 EUR. You contact HSBC Bank in Poland to see if you can lock in an exchange rate using forward contracts for the zloty in advance. You find the following table posted on the bank's web site, showing zloty per dollar, per euro, and per British pound. Spot 2 weeks 1 month 2months 3months rate forward forward forward forward USD Purchase 3.1433 3.1429 3.1419 3.1390 3.1361 Sales 3.1764 3.1761 3.1755 3.1735 3.1711 EUR Purchase 3.7804 3.7814 3.7836 3.7871 3.7906 Sales 3.8214 3.8226 3.8254 3.8298 3.8342 GBP Purchase 5.5142 5.5131 5.5112 5.5078 5.5048 Sales 5.5763 5.5750 5.5735 5.5705 5.5681 (a) What exchange rate could you use to lock in for the zloty in three months? The exchange rate is (round to four decimals) (b) How many zloty should you demand in the contract to receive 105000? The amount is zl. (round to integer zloty) (c) Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in Germany for the same period at the time? (hint: use the IRP equation FPLN/EUR/SPLN/EUR=(1+rPLN)/(1+rEUR) to compare the two interest rates) Because PLN are needed to purchase each EUR for contracts that expire later, the Polish than that in Germany. (fill in "more", "fewer", "higher", "lower" in the interest rate must be fields where appropriate)