IBM enters into a forward contract to purchase 200 000 euros at a rate of $1.50/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

Question

Quizplus · Accepted Answer

IBM must pay $300,000 because the forward contract specifies a purchase rate of $1.50/euro for 200,000 euros, resulting in a total of 200,000 euros * $1.50/euro = $300,000, regardless of the spot exchange rate at the time of transaction.

IBM Enters into a Forward Contract to Purchase 200 000