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Forex: Tutorial questions and Answers
- Module
- Finance and Banking
- Institution
- Sheffield Hallam University (SHU)
A set of questions related to forex in corporate treasury management.
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Extra questions FOREX1. A sterling-based exporter invoices goods worth US $40,000 on 1st January
with payment due in three months time ie 1st April.
The spot rate on 1st January is US $ 1.50 = £1.
The bank agrees a three month forward fixed contract at a rate of US $ 1.481.
This forward contract is made on first of January.
Requirement
Complete the different outcomes which will occur on 1st April in table below.
State whether the forward is settled or closed out and the financial outcome. All
workings should be placed in the workings section at the back of the answer
booklet.
Spot rate 1st Dollars Received Outcome
April by the Exporter?
US $ 1.65 = £1 Yes
$40,000/1.481=£27,008.78
received by the company
US $ 1.65 = £1 No
close out
$40,000/1.481=£27,008.78
$40,000/1.65=£24.242.42
=2,766.36 received by the
co.
US $ 1.35 = £1 Yes
$40,000/1.481=£27,008.78
received by the company
US $ 1.35 = £1 No close out
$40,000/1.481=£27,008.78
$40,000/1.35=29,629.63
=£2,620.85 paid by the co.
2. Assuming today is the 1st January
• The bank writes a 3 month call option in favour of the importer, strike price
US $1.30
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