Johnson Ltd a UK-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 £'s) quoted by Thailand's central bank in 90 days. The baht's rate is £0.012. If the rate quoted by Thailand's central bank on August 1 is £0.014, Johnson will ____ £____.

Question

Quizplus · Accepted Answer

Johnson Ltd will be paid the difference between the forward rate and the spot rate on the settlement date. The forward rate was £0.012, and the spot rate on August 1 is £0.014. The difference is £0.002 per baht. For 10 million baht, Johnson will be paid £20,000 (10,000,000 baht * £0.002).

Johnson Ltd a UK-Based MNC, Will Need 10 Million Thai