A forward contract is a contract between two parties to lock a rate for a transaction to occur on a specific future date. Forward contracts can be used by individuals to hedge the risk of unfavorable fluctuations in the prices in the future.
For example, a United States exporter is expecting to receive Euros 500,000 in the next three months. The current exchange rate is 1 Euro = 1.5 USD. The exporter thinks that the USD will strengthen in the next three months against Euros and he will receive less USD in exchange for Euros. To hedge this risk the exporter enters an exchange rate forward contract that offers to sell Euros 500,000 at 1 Euro = 1.45 USD.
Assume after three months the USD strengthened to an exchange rate of 1 Euro = 1.2 USD. As per forward rate contract the exported will still receive USD 725,000 (Euro 500,000 x 1.45) whereas he would have received USD 600,000 (Euro 500,000 x 1.2).
Use the same facts as in Problem 31 except that Brandlin Company
This morning you agreed to buy a one-year Treasury bond
Brandlin Company of Anaheim, California, sells parts to a foreign
A $50 stock pays an 8% continuous dividend. The
Assuming a forward contract to sell 100,000 Israeli shekels was
You enter into a forward contract to buy a 10-year
On November 1, Year 1, Alexandria Company sold merchandise to
If the portfolio you manage is holding $25 million of 6s
Zip purchased merchandise from Tas of Japan on November 1, 2016
A $50 stock pays a $1 dividend every 3 months
