That Italian antique was priced at 3 million lire that, fortunately, does not have to be paid for three months.The lira has a spot exchange rate of L2,000/$(U.S.) but is trading three months forward at a 5% discount.If you contract ahead now, how many U.S.Dollars will the antique cost?

Question

Quizplus · Accepted Answer

The forward rate is calculated by applying the 5% discount to the spot rate: 2,000 lire - (5% of 2,000 lire) = 1,900 lire/$. Therefore, 3,000,000 lire / 1,900 lire/$ = $1,578.95, which rounds to $1,425.

That Italian Antique Was Priced at 3 Million Lire That