A U.S.importer has to pay SKr1 million to a Swedish firm in 60 days.The current spot rate is $0.5 per Swedish krona,and the 60-day forward rate is $0.65.Bob forecasts that the spot rate in 60 days will be $0.45.Jane forecasts that the spot rate will be $0.85 in 60 days.The actual spot rate in 60 days turns out to be $0.68.Whose advice,between Bob and Jane,will save the company's money?

Question

Quizplus · Accepted Answer

If the importer had followed Bob's advice, they would have waited for 60 days and purchased the Swedish Krona at a spot rate of $0.45, instead of the 60-day forward rate of $0.65. This would have saved them some money. However, if the importer had followed Jane's advice and locked in the 60-day forward rate of $0.65, they would have been in a better position because the actual spot rate turned out to be higher than both Bob and Jane's predictions. Therefore, following Jane's advice would have saved the company money.

A USImporter Has to Pay SKr1 Million to a Swedish Firm