Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your start-up company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you

image text in transcribed

Your start-up company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you $193,300 in three months when the installation will occur. However, it insists on paying in Polish zloty (PLN). You don't want to lose the deal (the company is your first client!), but you are worried about the exchange rate risk. In particular, you are worried the zloty could depreciate relative to the dollar. You contact Fortis Bank in Poland to see if you can lock in an exchange rate for the zloty in advance. a. Assume that the current spot exchange rate is 2.3425 PLN per U.S. dollar and that the three-month forward exchange rate is 2.2556 PLN per U.S. dollar. How many zloty should you demand in the contract to receive $193,300 in three months if you hedge the exchange rate risk with a forward contract? b. Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in the United States at the time of this contract? a. Assume that the current spot exchange rate is 2.3425 PLN per U.S. dollar and that the three-month forward exchange rate is 2.2556 PLN per U.S. dollar. How many zloty should you demand in the contract to receive $193,300 in three months if you hedge the exchange rate risk with a forward contract? You should require PLN. (Round to the nearest integer.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Analysis And Modeling Using Excel And VBA

Authors: Chandan Sengupta

2nd Edition

047027560X, 978-0470275603

More Books

Students also viewed these Finance questions

Question

How will you handle any negative feelings about the changes?

Answered: 1 week ago