Forwards

Question 1

Rule 1

Answer 1

1) uk company and non uk rules are the same, if the company is receiving the currency they don’t want they will sell that currency , if the company is paying currency they don’t have they will buy that currency

Question 2

Rules 2&3

Answer 2

2) Forwards only have one calculation and you only need to know which forward rate to select,

3) the forward deal is done today not when the payment or receipt actually happen but the forward rate you pick is based on when this payment/ receipt takes place

Question 3

Rule 4&5

Answer 3

4) there will usually be 2 rates given to you to pick from ( the bank always wins)

• if you are buying currency pick the forward rate that makes you pay the highest amount
• if you are selling pick the forward rate that gives you the lowest receipt

5) if you work out the answer for both forward rates make sure you strike through the incorrect calculation as zero