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What three-month forward exchange rate

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Reference no: EM132752045

Problem 1: Your company is currently finalizing an agreement to sell 100 gismos to a customer in Britain for £250,000. While the negotiated price provides for a reasonable profit based on the current exchange rate of £1 = C$2.50, the sale will be on credit with payment due in 3 months. Talk of a strengthening Canadian dollar has unsettled you because of its potential impact on the profit from the sale, and you are thinking about hedging your commitment through the use of a forward contract. The effective annual interest rate in Canada is 4%. The interest rate in Britain is 6%. What 3-month forward exchange rate (expressed as C$1 = ) would be consistent with interest rate parity? Use SIX decimal places.

Reference no: EM132752045

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