Products

Holooly Rewards

We are determined to provide the latest solutions related to all subjects FREE of charge!

Please sign up to our reward program to support us in return and take advantage of the incredible listed offers.

Enjoy Limited offers, deals & Discounts by signing up to Holooly Rewards Program

Holooly Ads. Manager

Advertise your business, and reach millions of students around the world.

Holooly Tables

All the data tables that you may search for.

Holooly Arabia

For Arabic Users, find a teacher/tutor in your City or country in the Middle East.

Holooly Sources

Find the Source, Textbook, Solution Manual that you are looking for in 1 click.

Holooly Help Desk

Need Help? We got you covered.

Chapter 21

Q. 21.FSE.2

California Co. will need 1 million Polish zloty in 2 years to purchase imports. Assume  interest rate parity holds. Assume that the spot rate of the Polish zloty is $.30. The 2-year annualized interest rate in the United States is 5 percent, and the 2-year annualized interest rate in Poland is 11 percent. If California Co. uses a forward contract to hedge its payables, how many dollars will it need in 2 years?

Step-by-Step

Verified Solution

The 2-year forward premium is 1.1025/1.2321 – 1 = -.10518

The 2-year forward rate is $.30 × (1 – .10518) = $.26844

The amount of dollars needed is $.26844 × 1,000,000 zloty = $268,440.