Question
In: Accounting
QUESTION 1. Your company will receive AUD2,000,000 in 90 days. To convert this amount into USD,...
QUESTION 1.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
If you choose to sell forward, how much USD will you
receive?
QUESTION 2.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
If you choose to sell forward then
| A. The amount of USD you received will be determined today and can't be changed | |
| B. The amount of USD you received will be determined today but you can still sell AUD to other bank with better rate | |
| C. The amount of USD you received can't be determined today since you sell AUD in the future | |
| D. The amount of USD you received can't be determined today since the exchange rate is not known yet | |
| E. The amount of USD you received will be determined today and you will adjust that amount periodically. |
QUESTION 3.
Your company will receive AUD2,000,000 in 90 days. To convert this
amount into USD, you contact a bank to sell AUD forward. Here is
the information you got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
90-day Forward rate premium/discount is?
QUESTION 4. Your company will receive
AUD2,000,000 in 90 days. To convert this amount into USD, you
contact a bank to sell AUD forward. Here is the information you
got:
90-day forward rate: AUD1 = USD0.85
Today spot rate: AUD1 = USD0.90
After 90 days, market spot rate is AUD1 = USD0.92
During that 90-day period:
| A. AUD depreciates less than 3% | |
| B. AUD depreciates between 3% and 5% | |
| C. AUD depreciates between 5% and 7% | |
| D. AUD appreciates less than 3% | |
| E. AUD appreciates between 3% and 5% | |
| F. AUD appreciates between 5% and 7% |
Solutions
Expert Solution
| 1 | Company has AUD 2,000,000 receivable in 90 days. It has to convert it into USD after 90 days. So if it choose to sell AUD 2,000,000 forward @ 90 day forward rate AUD1= USD 0.85, then it will receive AUD 2,000,000 * USD 0.85 = USD 1,700,000 after 90 days | ||||
| Ans | |||||
| 2 | If you choose to sell forward then | ||||
| Ans | A. The amount of USD you received will be determined today and can't be changed. | ||||
| 3 | 90 days Forward rate discount:- | ||||
| Ans | Since forward rate is less than the spot rate. | ||||
| Forward rate - Spot rate | 0.85-0.90 | ×100 | = | 5.56% | |
| Spot rate | 0.90 | ||||
| Forward rate discount | |||||
| 4 | Actual Appreciation in AUD:- | ||||
| Since Spot rate After 90 days is higher than the spot rate today. | |||||
| Spot rate After 90 days - Spot rate today | 0.92-0.90 | ×100 | = | 2.22% | |
| Spot rate today | 0.90 | ||||
| Ans | D. AUD appreciates less than 3% | ||||
Feel free to ask any clarification, if required. Please provide feedback by thumbs up, if satisfied. It will be highly appreciated. Thank you.
ekkarill92 answered 9 months agoRelated Solutions
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