What are the upper and lower limits for trading at base rate

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Reference no: EM131625138

DBC Company Inc., imports equipment from LPD Company located in Germany. With the steady decline of the Canadian dollar against the Euro DBC is finding a continued relationship with LPD to be increasingly difficult. In response to DBC's request, LPD has proposed the following risk-sharing arrangement. First, set the current spot rate of C$1.30/€ as the base rate. As long as spot rates stay within 2.5% (up or down) DBC will pay at the base rate. Any rate outside of the 2.5% range, LPD will share equally with DBC the difference between the spot rate and the base rate. The agreement is for the next year.

1. What are the upper and lower limits for trading at the base rate?

2. At the next payment in 2 months, what effective exchange rate is paid if the spot rate is C$1.32/€?

3. At the next payment in 4 months, what effective exchange rate is paid if the spot rate is C$1.38/€?

Reference no: EM131625138

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