A company in Germany is expecting to receive R$3.2m (Brazilian Real) at some time between three and six months from now. The spot and forward rates for R$/ are:

Spot 2.703-2.708, Three month forward 2.717-2.724, Six month Forward 2.725-2.732.

The German company covers the receipt with an option forward contract, to be fulfilled at any time between three and six months from now. What rate will apply to the contract?

The relevant rates for selling R$ to the bank are 2.724 and 2.732. Of these, the worse rate is 2.732, which will give fewer Euros than the rate 2.724. The contract will be agreed at an exchange rate of R$/2.732.