Section B - Case 3: GlobalLogix
Scenario: GlobalLogix is a cross-border logistics firm based in the Eurozone (€). The company expects to receive $2,000,000 from a US client in 3 months' time.
Current spot rate ($/€): 1.1500 - 1.1550
3-month forward rate ($/€): 1.1600 - 1.1660
Eurozone interest rates: Borrow 2.0% per year, Deposit 1.0% per year.
US interest rates: Borrow 4.0% per year, Deposit 3.0% per year.
If GlobalLogix uses a forward contract to hedge this receipt, how many Euros (€) will they receive in 3 months?
ACCA · Question 29 · Risk Management
Section B - Case 3: GlobalLogix
Scenario: GlobalLogix is a cross-border logistics firm based in the Eurozone (€). The company expects to receive $2,000,000 from a US client in 3 months' time.
Current spot rate ($/€): 1.1500 - 1.1550
3-month forward rate ($/€): 1.1600 - 1.1660
Eurozone interest rates: Borrow 2.0% per year, Deposit 1.0% per year.
US interest rates: Borrow 4.0% per year, Deposit 3.0% per year.
Assume the annual inflation rate is expected to be 3.0% in the US and 1.5% in the Eurozone. Using Purchasing Power Parity (PPP), forecast the expected spot rate ($/€) in exactly one year's time. Use the spot rate of 1.1550 as your base.
(Provide your answer to four decimal places, e.g., 1.1234).
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