Question
A company has purchased equipment from an American firm for $6,000,000 payable in 4 annual instalments. The first installment is payable immediately. The US company
A company has purchased equipment from an American firm for $6,000,000 payable in 4 annual instalments. The first installment is payable immediately. The US company allows credit at 6% p.a. The purchaser, whose revenues are in pound sterling, is at risk from an appreciation of the US dollar against sterling. The purchaser shops around for forward contracts and finds that the UK subsidiary of a US bank is prepared to offer one, two, and three- years forward contracts at British Pound 1 = $1.47, 1.44, and 1.41 respectively. The spot rate for British pound 1= $1.50. Should the forwards be used to restructure the debt
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