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Calculate the forward rate and value

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Reference no: EM131167429

Problem: Joo Ltd, a South African exporter, sells car parts to the value of €150 000 (Euro dollars) on 1 July 2013 to a company in Italy. Payment is made to Joo Ltd on 1 August 2013. The following information is available:

Price in €

Exchange rate

Price in R

I July 2013

€150 000

€1 = R14.25

R2 137 500

1 August 2013

€150 000

Unknown

Unknown

The forward Rand to € rate is trading at a Rand discount of 20% per annum.

Required:

1. Joo wants to take out forward cover. Calculate the forward rate and the value of the transaction as at 1 August 2013. Round to four decimal places.

2. Describe the effect on the transaction if on 1 August 2013 the R/€ rate is € 1 = 14.70 and Joo never entered into any forward cover contract.

Reference no: EM131167429

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