8. In August 2020, your company signed a contract to purchase raw materials from a US supplier...
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Question:
8. In August 2020, your company signed a contract to purchase raw materials from a US supplier for $150,000 to be delivered in one year. At the same time, your company signed a one-year forward contract for the purchase of $150,000.
a) If in August 2020, the spot exchange rate was $1.2/, the one-year interest rate in France was 0.75% and the US one-year interest rate was 2.5%, what one-year forward exchange rate should your company have accepted for its one-year forward contract to be consistent with no arbitrage?
b) If in August 2021, when payment for the raw materials purchase contract is due, the spot exchange rate is $1.097/, what amount will your company have to pay in euros?
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