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CFA Level 2
Derivatives

Currency Forward Contract Valuation

Easy Forward Pricing And Valuation Currency Forwards

Company ABC is based in the United States and has a foreign subsidiary in Japan. The CFO of Company ABC wants to enter into a forward contract to hedge potential currency fluctuations for their upcoming cash flow of ¥100,000,000 expected in six months. The current USD/JPY spot rate is 110.00, and the forward rate for six months is 112.00.

What is the amount of USD that Company ABC will receive in six months if they enter into this forward contract?

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