Q50002 In March, 2008, the Zed Pro Industries makes the

In March, 2008, the Zed Pro Industries makes the following assessment of dollar rates per British pound to prevail as on 1.9.2008:

• What is expected spot rate for 1.9.2008?
• If, as of March, 2008, the 6 –month forward rate is $ 1.80, should the firm sell forward its pound receivables due in September, 2008?

Solution:

• Calculation expected spot rate for September, 2008:

Therefore, the expected spot value $ for £ for September, 2008 would be $ 1.81.

• If the six – months forward rate is $ 1.80, the expected profits of the firm can be maximized by retaining its pound receivable.

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