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4. An American exporter expects to receive 5 million Canadian Dollars in 6 months. Current prices are given as: Spot rate, St Forward rate, FT
4. An American exporter expects to receive 5 million Canadian Dollars in 6 months. Current prices are given as: Spot rate, St Forward rate, FT Bid - ask Bid - ask CAD/USD 1.3115-1.3120 1.3105-1.3115 6 month interest rates (annualized) USD CAD Bid - ask Bid - ask 0.4-0.6% 0.3 -0.5% (a) If the exporting firm sells the CAD with a forward contract, how many USD will they get in 6 months? (b) If they replicate the forward contract in the spot and money markets, how many USD will they get in 6 months? (c) What can explain the difference between (a) and (b)? (d) Are there any arbitrage opportunities at these prices
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