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Spot and Forward Rates: Chamberlain Canadian Imports

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Chamberlain Canadian Imports has agreed to purchase 15,000 cases of Canadian beer for 4 million Canadian dollars at today's spot rate. The firm's financial manager, James Churchill, has noted the following current spot and forward rates:

US dollar/Canadian dollar Canadian dollar/US dollar
Spot 0.6930 1.4430
30-day fwd 0.6935 1.4420
90-day fwd 0.6944 1.4401
180-day fwd 0.6957 1.4374

On the same day, Churchill agrees to purchase 15,00 more cases of beer in 3 months at the same price of 4 million Canadian dollars.
a. What is the price of the beer, in US dollars, if it is purchased at today's spot rate?
b. What is the cost, in US dollars, of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today's rate?
c. If the exchange rate for the Canadian dollar is 1.20 to $1 in 90 days, how much will Churchill have to pay for the beer (in US dollars)?

Solution Preview

a) The spot rate is US$ 0.6930/CAD. The purchase price in US$ is 4.0*0.6930=US$ 2.7720 million
Price per case of beer is ...

Solution Summary

This solution shows step-by-step calculations to determine the price of beer purchased at different periods depending on the exchange rate.