Suppose that the spot rate and the 90-day forward rate on the pound sterling are $1.35 and $1.30,respectively.Your company,wishing to avoid foreign exchange risk,sells £500,000 forward 90 days.Assuming that the spot rate remains the same 90 days hence,your company would
A)receive £500,000 90 days hence
B)receive more than £500,000 in 90 days
C)have been better off not to have sold pounds forward
D)receive nothing

Question

Quizplus · Accepted Answer

The company would have been better off not selling pounds forward because the spot rate remained the same, and they could have received more dollars per pound at the spot rate of $1.35 compared to the forward rate of $1.30.

Suppose That the Spot Rate and the 90-Day Forward Rate