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negotiated a forward exchange rate

Sept 1.3634 C$/US$

Oct 1.3221 C$/US$

In September 2003, a U.S. retailer wanted to purchase canola oil from a Canadian farm. At that time in Canada, one barrel of canola oil cost C$2.00 (two Canadian dollars). The Canadian farm promised to deliver the canola oil in October 2003. Given the information above, which of the following statements is true?

A. If the two businesses negotiated a forward exchange rate in September, the risk of a change in exchange rates would be eliminated.

B. If the two businesses exchanged at the spot exchange rate, the Canadian canola oil was relatively less expensive for U.S. retailers in October than in September.

C. If the two businesses exchanged at the spot exchange rate, the Canadian farm received more than two Canadian dollars per barrel in October.

D. The Canadian canola oil is the same price for U.S. retailers regardless of whether the two businesses used the spot or forward rate.

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A. If the two businesses negotiated a forward exchange rate in September, the risk of a change in ...

Solution Summary

In September 2003, a U.S. retailer wanted to purchase canola oil from a Canadian farm. At that time in Canada, one barrel of canola oil cost C$2.00 (two Canadian dollars). The Canadian farm promised to deliver the canola oil in October 2003. Given the information above, which of the following statements is true?

A. If the two businesses negotiated a forward exchange rate in September, the risk of a change in exchange rates would be eliminated.

B. If the two businesses exchanged at the spot exchange rate, the Canadian canola oil was relatively less expensive for U.S. retailers in October than in September.

C. If the two businesses exchanged at the spot exchange rate, the Canadian farm received more than two Canadian dollars per barrel in October.

D. The Canadian canola oil is the same price for U.S. retailers regardless of whether the two businesses used the spot or forward rate.

$2.19