What is meant by counterparty risk on a forward contract

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Reference no: EM131793478

Question: A Thai firm signs a contract today with an Indian firm to buy office equipment The Thai firm will pay 705,000 rupee on December 23, 2017 The Thai firm wishes to insure itself against exchange rate risk. The sport rate today is 1 Thai baht equals 1.41 rupee.

a. Suppose that the Thai firm uses the forward market to insure itself against exchange rate risk. The forward rate is 1 Thai baht equals rupee.1.42 rupee Compute the amount of Thai baht required for sure to make the payment on December

b. Suppose the exchange rate on December 23, 2017 is 1 Thai baht equals 1.40 rupee Compute the spot forward contract.

c. Explain what is meant by counterparty risk on a forward contract.

Reference no: EM131793478

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