Problem 5.5  Vancouver Exports           A Canadian exporter, Canuck Exports, will be receiving six payments of €12,000, ranging from now to 12...

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Problem 5.5  Vancouver Exports
           
A Canadian exporter, Canuck Exports, will be receiving six payments of €12,000, ranging from now to 12 months in the future. Since the company keeps cash balances in both Canadian dollars and U.S. dollars, it can choose which currency to change the euros to at the end of the various periods. Which currency appears to offer the better rates in the forward market?
           
  Days        
Period Forward C$/euro US$/euro    
spot   1.3360 1.3221    
1 month 30 1.3368 1.3230    
2 months 60 1.3376 1.3228    
3 months 90 1.3382 1.3224    
6  months 180 1.3406 1.3215    
12 months 360 1.3462 1.3194    
           
  Days   Forward  Premium C$ Proceeds of Difference
Period Forward C$/euro on the C$/euro € 12,000.00 Over Spot
spot                 1.3360                           
1 month 30               1.3368 0.722%    
2 months 60               1.3376 0.705%    
3 months 90               1.3382 0.659%    
6  months 180               1.3406 0.693%    
12 months 360               1.3462 0.765%    
           
           
  Days   Forward  Premium US$ Proceeds of Difference
Period Forward US$/euro on the US$/euro € 12,000.00 Over Spot
spot                 1.3221      
1 month 30               1.3230 0.817%    
2 months 60               1.3228 0.318%    
3 months 90               1.3224 0.091%    
6  months 180               1.3215 -0.091%    
12 months 360               1.3194 -0.204%    
           
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    Dr JamesAndrews
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