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CFA Level 2
Derivatives

Currency Forward Pricing Calculation

Very Easy Forward Pricing And Valuation Currency Forwards

Company A, based in the United States, has a business transaction that will require it to pay €1,000,000 in six months. To mitigate the risk of currency fluctuations affecting this payment, Company A decides to enter into a forward contract to buy euros (EUR) at a forward exchange rate of 1.20 USD/EUR. What will be the total USD amount that Company A would need to pay in six months to fulfill its obligation?

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