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 Canadian Dollar/U.S. 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
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)