Your Canadian company processes raw sugar for sale in the United States, and the firm has just received a container of raw material from the UK. You have an invoice that asks you to pay £20,000 in 30 days. The current exchange rate is $1.75/£. Invoice amount = £20,000 Exchange rate 1£ = $ 1.75 Cost of bill today in Canadian $ = Invoice amount*Exchange rate 1£ = 20,000*1.75 = Canadian $ 35,000 If you thought the dollar would trade at $2.0/£ in 30 days, what should you do?
Your Canadian company processes raw sugar for sale in the United States, and the firm has just received a container of raw material from the UK. You have an invoice that asks you to pay £20,000 in 30 days. The current exchange rate is $1.75/£. Invoice amount = £20,000 Exchange rate 1£ = $ 1.75 Cost of bill today in Canadian $ = Invoice amount*Exchange rate 1£ = 20,000*1.75 = Canadian $ 35,000 If you thought the dollar would trade at $2.0/£ in 30 days, what should you do?
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 33QA
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A1 2b
Your Canadian company processes raw sugar for sale in the United States, and the firm has just received a container of raw material from the UK. You have an invoice that asks you to pay £20,000 in 30 days. The current exchange rate is $1.75/£.
Invoice amount = £20,000
Exchange rate 1£ = $ 1.75
Cost of bill today in Canadian $ = Invoice amount*Exchange rate 1£
= 20,000*1.75
= Canadian $ 35,000
If you thought the dollar would trade at $2.0/£ in 30 days, what should you do?
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