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Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today's spot rate. The current and forward spot rates are as follows:
Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today's spot rate. The current and forward spot rates are as follows:
US dollar/British pound British pound to US dollar
Spot 1.5110 0.5128
30-day forward 1.5540 0.5056
90-day forward 1.5460 0.5075
180-day forward 1.5400 0.5088
On the same day, Y agrees to purchase 11,500 more bags in 3 months at the same price of 500,000 British pounds.
a. What is the cost of the bags in US dollars, if purchased at today's spot rate ?
b. What is the cost in dollars of the second 11,500 order if payment is made in 90 days and the spot rate at the time equals today's 90-day forward rate ?
c. If the exchange rate is 0.55 British pounds per dollar in 90 days, how much will Y have to pay (in dollars) for the bags ?
