Question
You have decided to purchase a service apartment in a newly built residential complex in Orlando, Florida (near Disneyland). Your agreement with the real estate
You have decided to purchase a service apartment in a newly built residential complex in Orlando,
Florida (near Disneyland). Your agreement with the real estate developer specifies that construction
of the apartment will be completed, and its keys will be handed to you three months from today. The
purchase price is USD 400,000 to be paid at the time of possession. The current spot exchange rate is
CAD1.3333/USD and the current 3-month forward rate is CAD1.3456/ USD. You intend to pay for
the apartment using your USD savings from a bank account in Canada. These dollars are earning
interest at 4% per annum in Canada. Interest rates in the United States are 2% per annum.
What options are available to you to pay for the condominium apartment if you want to avoid all
foreign exchange risk associated with the transaction? Show which of the choices will work out best
for you (or having the lowest cost to you).
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