MGCR 382 Lecture Notes - Lecture 18: Singapore Dollar, Foreign Exchange Spot, Forward Exchange Rate
6 Sep 2016
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Document Summary
Mgcr382- lecture 18- introduction to foreign exchange part 2. The exchange rate for immediate delivery (where immediate usually means within 2 business days). Exchange rate for delivery at a pre-specified future date. Many situations in which firms know in advance that they need to exchange currencies (e. g. need to pay a foreign bill, receive money from foreign clients, etc. This is risky because you don"t know at what spot exchange rate (what amount of money you need to set aside) will be in 3 months. Would like to lock-in an exchange rate today. Eg: you are a canadian firm, you"ll recieve 50m us$ in 1 year. You sign a foward to sell 50 m$ in one year, you do not hand in the money, only sign the contract. You"ll collect 50m$ * 1. 2(cad/us) = 60m cad. If the spot rate on the date you collect the money is 1. 3, you could have gotten 65m cad.
