You have decided to purchase a deluxe condominium apartment in a newly built residential complex in South Florida. Your agreement with the real estate developer specifies that construction of the apartment will be completed and its keys will be handed to you three months from today. The purchase price is US$200,000 to be paid at the time of possession. The current spot exchange rate is $.9770/US$ and the current 3-month forward rate is $.9790/US$.
You intend to pay for the apartment using your dollar savings from a bank account in Canada. These dollars are earning interest at 5% per annum in Canada. Interest rates in the United States are 3% per annum.
What options are available to you to pay for the condominium apartment if you want to avoid all foreign exchange risk associated with the transaction? Show which of the choices will work out best for you.