How would you price the product that the company wants

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Question: A company that is uncertain about the exact date when it will pay or receive a foreign currency may try to negotiate with its bank a forward contract that speci?es a period during which delivery can be made. The company wants to reserve the right to choose the exact delivery date to it in with its own cash ?ows. Put yourself in the position of the bank. How would you price the product that the company wants? 5.30. A trader owns gold as part of a long-term investment portfolio. The trader can buy gold for $1,250 per ounce and sell it for $1,249 per ounce. The trader can borrow funds at 6% per year and invest funds at 5.5% per year (both interest rates are expressed with annual compounding). For what range of 1-year forward prices of gold does the trader have no arbitrage opportunities? Assume there is no bid-o?er spread for forward prices.

Reference no: EM131928332

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