Evaluate the annualized forward premium, Corporate Finance

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Question:

(a) A bank quotes the following prices for the US dollar: €0.7915 - €0.7918 A German company receives €10 million as payment for a generator supplied to an American company.

(i)What is the dollar cost to the American company making the payment?

(ii) The German company decides to convert the payment back into dollars, in anticipation of a forthcoming purchase of raw materials. How many dollars will it now hold?

(b) The following information from the foreign exchange market is given

1958_Evaluate the annualized forward premium.png

(i) Determine the direct spot quote for the Japanese Yen in India.

(ii) Evaluate the direct forward quote for the Indian rupee in China.

(iii) Consider a Chinese customer wants to sell a 12-month forward Chinese Yuan against the Japanese yen delivery.

Evaluate the annualized forward premium/discount in the forward market.


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