Reading 68: Forward Markets and Contracts LOSh习题精选 2010, currency, exchange, received, company

honeycfa

LOS h: Describe the characteristics of currency forward contracts.

Macklin Metals has received 80 million pounds sterling. The company plans to spend $120 million on a project in the United States in 90 days. Macklin inters into a cash settlement currency forward to exchange the pounds for U.S. dollars at a rate of $1.50 per pound in 90 days. If the exchange rate is $1.61 per pound at the settlement date, the cash settlement Macklin will pay or receive is closest to:

A) $8.8 million receipt.

B) $5.5 million payment.

C) $8.8 million payment.

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Under the contract, Macklin receives:
80 million pounds × $1.50 = $120.0 million
At market rates, Macklin would receive:
80 million pounds × $1.61 = $128.8 million
Macklin must pay the difference, $8.8 million ($128.8 million ? $120 million), as the cash settlement to the counterparty.

 

honeycfa

An agreement that requires the parties to exchange a certain amount of Yen for a certain amount of Euros on a specific date in the future is called a(n):

A) exchange rate agreement.

B) foreign exchange future.

C) currency forward contract.

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Such an agreement is called a currency forward contract.

honeycfa

A currency forward contract:

A) requires a payment at settlement based on London Interbank Offered Rate.

B) can be a deliverable contract.

C) is priced using the future interest rate on a foreign currency.

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A currency forward contract can be a deliverable or cash-settlement contract. It is a contract to exchange fixed amounts of two currencies at settlement and its value depends on market exchange rates at contract expiration.

honeycfa

Macklin Metals has received 80 million pounds sterling. The company plans to spend $120 million on a project in the United States in 90 days. Macklin inters into a cash settlement currency forward to exchange the pounds for U.S. dollars at a rate of $1.50 per pound in 90 days. If the exchange rate is $1.61 per pound at the settlement date, the cash settlement Macklin will pay or receive is closest to:

A) $8.8 million receipt.

B) $5.5 million payment.

C) $8.8 million payment.

---

Under the contract, Macklin receives:
80 million pounds × $1.50 = $120.0 million
At market rates, Macklin would receive:
80 million pounds × $1.61 = $128.8 million
Macklin must pay the difference, $8.8 million ($128.8 million ? $120 million), as the cash settlement to the counterparty.