ACCA FM · Guided practice (Show me how)
Chapter 23: Foreign exchange risk management
Spot and forward contracts - the right side of the quote
Rates are the first-named currency per one of the second ($/GBP = dollars per pound). In a two-way quote the first number is the rate if WE are buying the first-named currency, the second number the rate if we are selling it.
(a) X is due to pay $200,000 in one month's time. Spot $/GBP 1.4820 - 1.4905; one-month forward $/GBP 1.4910 - 1.4970. If X contracts one month forward, how much will he have to pay in one month's time, in pounds?
(b) Y is due to receive $150,000 in three months' time. Spot $/GBP 1.5326 - 1.5385; three-month forward 0.62 - 0.51 c pm (cents premium). How much will Y receive, in pounds?
(a) X: a forward payment
Identify X's applicable forward rate and calculate its pound payment at the contract date.
(b) Y: a forward receipt at a premium
Calculate Y's outright forward rate and pound receipt at the contract date.
Opening this exercise…