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What is the cost of the bags in us dollars

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Problem:

Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today's spot rate. The current and forward spot rates are as follows:

US dollar/British pound British pound to US dollar

Spot 1.5110 0.5128

30-day forward 1.5540 0.5056

90-day forward 1.5460 0.5075

180-day forward 1.5400 0.5088

On the same day, Y agrees to purchase 11,500 more bags in 3 months at the same price of 500,000 British pounds.

a) What is the cost of the bags in US dollars, if purchased at today's spot rate?

b) What is the cost in dollars of the second 11,500 order if payment is made in 90 days and the spot rate at the time equals today's 90-day forward rate?

c) If the exchange rate is 0.55 British pounds per dollar in 90 days, how much will Y have to pay (in dollars) for the bags?

Reference no: EM132661847

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