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Hi, I am working through the F3 notes and on Chapter 3, question 2 I am not entirely sure where the gain on forward value of $47,619 has come from. Are you able to explain this value?
thanks,
danielleHi,
It is the difference between if we exchange with or without the contract.
With the contract = 1,100,000 / 1.1 = 1,000,000
Without the contract = 1,100,000 / 1.05 = 1,047,619As it is cheaper to purchase the machinery with the forward contract then there is a gain on it.
Hope this helps.
Thanks
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