Solution-Explain the position of the bank

Explain the position of the bank

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Reference no: EM133122549

Suppose that a company needs to pay 1 foreign currency to others in the future, but is uncertain about the exact date of this payment. The company wishes to negotiate with its bank a forward contract where there is a period [T11 T2] during which the delivery can be made. The company wants to reserve the right to choose the exact delivery date t E [T1,Tg], on which the company pays K domestic currency to the bank and receives 1 foreign currency from it. Put yourself into the position of the bank. How would you price the product that the client wants?I In other words, explain how you would decide the value of K so that the value of this contract for bank is always non-negative.

Reference no: EM133122549

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Explain the position of the bank

Reference no: EM133122549

Reference no: EM133122549

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