Johnson, Inc., a U.S.-based MNC, will need 10 million Thai baht on August 1. It is now May 1. Johnson has negotiated a non-deliverable forward contract with its bank. The reference rate is the baht's closing exchange rate (in $) quoted by Thailand's central bank in 90 days. The baht's spot rate today is $.02. If the rate quoted by Thailand's central bank on August 1 is $.022, Johnson will ____ $____.

Question

Quizplus · Accepted Answer

The difference in exchange rates ($.022 - $.02) = $.002 per baht. For 10 million baht, the difference is 10,000,000 * $.002 = $20,000. Since the baht appreciated, Johnson will be paid the difference, not pay it.