土豆妮

A Hong Kong company needs to pay one of its suppliers 8,000,000 Indian rupees 90 days from now. The company is worried that rupees will appreciate during this time and decides to partially hedge its exchange rate risk by entering a contract to purchase half of the rupees 90 days into the future for a price of 5.9364 INR/HKD. The current exchange rate is 5.7921 INR/HKD.

90 days later, the exchange rate is 5.8764 INR/HKD. What is the gain/loss of entering this forward contract?

A) ?6,880 HKD.

B) 6,880 HKD.

C) 9,906 HKD.

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By entering into the forward contract, the company gained [(4,000,000 / 5.9364) ? (4,000,000 / 5.8764)] = 6,880 HKD.

土豆妮

Which of the following statements about exchange rates is most accurate?

A) Given the bid-ask spread between pesos and dollars is 6.0000-6.0025, and the bid-ask spread between pounds and dollars is 2.0000-2.0015, then the bid/ask spread between pesos and pounds is 2.875-2.934.

B) The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency.

C) A bid of 8.000 pesos/dollar, means the bank will sell you a dollar for 8 pesos.