A company enters into a forward contract with a bank to sell a foreign currency for K 1 at time T 1 The exchange rate at time T 1 proves to be S 1 ( K 1 ) The company asks the bank if it can roll the contract forward until time T 2 ( T 1 ) rather than settle at time T 1 The bank agrees to a new del...

The value of the contract to the bank at time is The ...

A company enters into a forward contract with a bank to sell a foreign currency for K

Question:

A company enters into a forward contract with a bank to sell a foreign currency for K₁ at time T₁. The exchange rate at time T₁ proves to be S₁ (> K₁). The company asks the bank if it can roll the contract forward until time T₂ (> T₁) rather than settle at time T₁. The bank agrees to a new delivery price, K₂. Explain how K₂ should be calculated.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...