Assume IBM Enters into a Forward Contract to Purchase 200,000

question 101

Multiple Choice

Assume IBM enters into a forward contract to purchase 200,000 euros at a rate of $1.90/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

• A) $300,000
• B) $325,000
• C) $380,000
• D) $400,000

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Definitions:

Bias

A forecast that is consistently higher or consistently lower than actual values of a time series.

Seasonally-Adjusted Sales Forecast

A prediction of future sales that has been modified to account for regular seasonal variations in demand or sales patterns.

Complementary Demands

A market condition where the demand for two or more goods is linked because the goods are used together, leading to a rise in demand for one affecting the other positively.

Seasonal Fluctuations

Regular changes in patterns or levels of activity in data or phenomena influenced by seasonal conditions.