Explain how k2 should be calculated

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Reference no: EM131235886

A company enters into a forward contract with a bank to sell a foreign currency for K₁ at time T₁. The exchange rate at time T₁ proves to be S₁ (> K₁).

The company asks the bank if it can roll the contract forward until time T₂ (> T₁) rather than settle at time T₁. The bank agrees to a new delivery price, K₂. Explain how K₂ should be calculated.

Reference no: EM131235886

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