A Toronto based exporter have exported a shipment of sulphuric acid to New York on 1st August, 2022. Invoice value is USD 750,000 and the exchange rate on the shipment date is USD 1 = CAD 1.3529.

Payment terms are 120 days open account. However importer paid an advance of USD 250,000 on 10th July, 2022 when exchange rate was USD 1 = CAD 1.3576.

Shipper was worried about the continuing free downfall of CAD and approached TD Bank to provide a competent financial solution, which has offered a 120 days forward rate of CAD 1.3648 on a forward premium of CAD 2,500. Indeed the exchange rate on 1st December, 2022 turned out to be CAD 1.3514 for one USD.

If the exchange rate turns out to be CAD 1.3209 for one USD on 1st December 2022, did the exporter made the right decision to enter into an agreement with TD bank?

(A) True (B) False

Question 7

If the exchange rate turns out to be CAD 1.3209 for one USD on 1st December 2022, how much money did the shipper made or lost due to forward rate agreement?

Question 8

If the Canadian dollar was declining on a constant basis and exporting company is worried about freefall of CAD. Is their worries justified?

(A) Yes (B) No