Question

Golden Apple, Inc., based in Washington, exports products to a French firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Golden Apple negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. Golden Apple will receive how many dollars for the euros?

Answer 1

$220.000

Step-by-step explanation:

On June 1, Golden Apple negotiated a forward contract with a bank to sell the €200.000 in three months at a rate of $1,10. On september 1, the rate is 1,15 but as there was a previous contract signed, the rate is $1,10 taking into account that this type of contracts determine the rate of interest that will be paid on a future date.