Posted: February 4th, 2016

A company called American Banking and Trading has entered into a long forward contract to buy 10 million British pounds at a price of $1.55.

1) The spot price of a euro in dollars is $0.9319. The U.S. interest rate (dollar LIBOR) for 90 days is 6.86875% and the euro rate (called EURIBOR) for 90 days is 4.467%. All interest calculations are done in the standard Eurodollar way, which is rate times days/360.

Determine the rate for a forward contract on the euro expiring in 90 days

2) A company called American Banking and Trading has entered into a long forward contract to buy 10 million British pounds at a price of $1.55. The contract has five months to go. The spot rate is currently $1.62. The British interest rate is 2.25% and the U. S. interest rate is 2.65%. Interest is calculated in the Eurodollar (add-on) manner. Determine the value of the contract.