Question
Your company will require 1 million British pounds (GBP) sterling 2 months from now. Right now, this would cost you 2 million dollars Canadian (CAD),
Your company will require 1 million British pounds (GBP) sterling 2 months from now.
Right now, this would cost you 2 million dollars Canadian (CAD), but your rm wants
to enter into a range forward to execute that purchase. The spot exchange rate has
a volatility of 18%, the continuously compounding CAD interest rate is 3%, while the
British rate is 2%. If the minimum that you would pay for the 1 million pounds is 0.30
million CAD less than today's price, what is the maximum that you would pay?
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Exchange Rates and International Finance
Authors: Laurence Copeland
6th edition
273786040, 978-0273786047
