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# Calculating Forward contract value for foreign Exchange

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Today spot rate £ 1 = US \$ 2
3-month forward rate £ 1 = US \$ 2.10
After 3-month spot rate £ 1 = US \$ 2.20

US importer needs £ 1million payment 3-months later, and he sign a forward contract today

a. How much (US\$) does the importer need to pay after 3 months?
b. How much is the cost of hedge?
c. Better sign a forward contract today or not sign a forward contract today? Why?

https://brainmass.com/economics/contracts/calculating-forward-contract-value-for-foreign-exchange-193250

#### Solution Preview

Today spot rate £ 1 = US \$ 2
3-month forward rate £ 1 = US \$ 2.10
After 3-month spot rate £ 1 = US \$ 2.20

US importer needs £ 1million payment 3-months later, and he sign a forward contract today

a. How much (US\$) does the importer need to ...

#### Solution Summary

Solution explains whether a importer should sign a forward contract to safeguard against foreign currency fluctuations or not.

\$2.19