Download Chamberlain Canadian Imports has agreed to

Chamberlain Canadian Imports has agreed to purchase 15,000 cases of Canadian beer for
4 million Canadian dollars at today's spot rate. noted the following current spot and
forward rates:
U.S. Dollar/Canadian Dollar
Spot
0.6930
1.4430
30-day forward 0.6935
1.4420
90-day forward 0.6944
1.4401
180-day forward 0.6957
1.4374
Canadian Dollar/U.S. Dollar
On the same day, Churchill agrees to purchase 15,000 more cases of beer in 3 months
at the same price of 4 million Canadian dollars.
a. What is the price of the beer, in U.S. dollars, if it is purchased at today's spot rate?
b. What is the cost, in U.S. dollars, of the second 15,000 cases if payment is made in
90 days and the spot rate at that time equals today's 90-day forward rate?
c. If the exchange rate for the Canadian dollar is 1.20 to $1 in 90 days, how much will
Churchill have to pay for the beer (in U.S. dollars)
a.C$4,000,000/C$1.4430 = $2,772,002.77  $2,772,003, or
C$4,000,000  $0.6930 = $2,772,000. (Difference is due to rounding.)
b.C$4,000,000/C$1.4401 = $2,777,585, or
C$4,000,000  0.6944 = $2,777,600.
c.If the exchange rate is C$1.20 to $1 when payment is due in 3 months, the
C$4,000,000 will cost:
C$4,000,000/C$1.20 = $3,333,333,
which is $561,330 more than the spot price today and $555,748 more than
purchasing a forward contract for 90 days.