Question
Strava, Inc. expects to pay a topographic surveyor in Sweden on Apr. 1, three months from now. Strava will have to buy 600,000 Swedish krona
Strava, Inc. expects to pay a topographic surveyor in Sweden on Apr. 1, three months from now. Strava will have to buy 600,000 Swedish krona (SEK) to pay the Swedish surveyor. On Jan. 1, Bank of San Francisco (BSF) recommends to Strava a non-deliverable forward contract (NDF) to hedge the exchange rate risk. Specifically, the BSF has proposed the following NDF contract: Amount to buy: SEK 600,000 Spot price on Jan. 1 $0.12 Settlement date: Apr. 1 Reference price: SEK closing price on Apr. 1
Suppose the closing price of SEK is $0.14 on the settlement date, Apr. 1. Determine (i) how much Stravas payable is worth in US dollar on the settlement date and (ii) what is the firms gain or loss associated with its NDF contract.
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