In December 2005,the Spot Exchange Rate for the British Pound

question 44

Essay

In December 2005,the spot exchange rate for the British Pound was $1.7188/£ and the one-year forward rate was $1.8675/£.Suppose that at the same time Luther Industries entered into a contract to purchase goods with a price of £375,000 to be delivered in one year.Simultaneously Luther entered into a one-year forward contract to purchase £375,000.What is the amount of the payment in U.S.dollars that Luther Industries will have to make in one year to pay for their goods?

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Definitions:

Imitation

The action of copying or mimicking the behaviors, movements, or sounds made by another individual.

Shaping

A method of gradually teaching a new behavior through the use of reinforcement until the target behavior is achieved.

Chaining

A method of teaching complex behaviors by breaking down the task into small steps and teaching each step within the sequence individually until the whole sequence is mastered.

Positive Reinforcement

A technique used in behavioral psychology to increase the likelihood of a desired behavior by rewarding it.