Salomon Brothers proposes to investors a contract called a range forward contract. Here is an example of

Question:

Salomon Brothers proposes to investors a contract called a range forward contract. Here is an example of such a U.S. dollar/British pound contract:
The contract has a size of £100,000 and a of three months. At the investor will purchase the pounds at a price that is a function of the spot If the spot at is less than $1.352/£, the investor will pay $1,352 to get one pound.
■ If the spot at is between $1.352/£ and S1.470/£, the investor will pay the current spot to get one pound.
■ If the spot at is more than SI. 170 "C. the investor will pa\ SI.470 to get one pound.
Assume that you are a British exporter who will receive S10 million in three months that will have to be transferred into British pounds at the time. Currently, the spot and forward exchange rates are $1.4200/£ and $1.4085/£, respectively.
a. Explain why such a range forward contract could he attractive if you feat a depreciation of the dollar during the three months.
b. Explain why Salomon Brothers can sell such a contract at a very low price.
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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...