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.If the U.S.importer believes Jane's forecast,it would:
A) buy SKr in the forward market at $0.65.
B) wait and buy SKr 60 days later at $0.68.
C) buy SKr now at $0.68 and let it sit in the company's safe.
D) wait and buy SKr in the forward market 60 days later at $0.65.

Question

Quizplus · Accepted Answer

If the U.S. importer believes Jane's forecast of a higher future spot rate ($0.85), it would be more economical to buy SKr in the forward market at $0.65 to avoid the risk of the currency becoming more expensive in the future.

A USImporter Has to Pay SKr1 Million to a Swedish Firm