A Canadian importer has to deliver 30,000,000 GBP in 3 months’ time.
Assume that market situation as at today is as follows:
SPOT Rates (FOREX):
GBP/CAD = 1.8380 - 85.
Money Markets Interest Rates:
CAD 3 MONTHS: 3.25 % - 3.50 % per annum
GBP 3 MONTHS: 4.75 % - 5.25 % per annum
CAD 6 MONTHS: 3.75 % - 4.00 % per annum
GBP 6 MONTHS: 5.25 % - 5.50 % per annum
(a) Draw the currency balance.
(b) Calculate the forward exchange rate for three months. Explain your approach. Quickly discuss the advantage and inconvenient of currencies forward.
d) If you use currencies options, what strategies could you propose? Draw all the required profiles. Remember the objective is to hedge!
Sample Solution