Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in Canada? Explain

Your start-up company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you 100,000 CAD in three-month’s time when the installation will occur. However, it insists on paying in Polish zloty (PLN). You don’t want to lose the deal (the company is your first client!) but are worried about the exchange rate risk. In particular, you are worried the PLN could depreciate relative to the CAD. You contact Fortis Bank in Poland to see if you can lock in an exchange rate for the PLN in advance.

a. The current spot exchange rate is 2.3117 PLN per CAD. The three-month forward exchange rate is 2.2595 PLN per CAD. How many PLN should you demand in the contract to receive 100,000 CAD in three months if you hedge the exchange rate risk with a forward contract?

b. Given the bank forward rates in part (a), were short-term interest rates higher or lower in Poland than in Canada? Explain

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Plot your profits in one year from the contract as a function of the exchange rate in one year, for exchange rates from 0.75 CAD/EUR to 1.50CAD/EUR. Label this line “Unhedged Profits.”

You are a broker for frozen seafood products for Choice Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in one year you….

What is the present value of the 5 million EUR cash inflow computed by first discounting the EUR and then converting it into CAD?

You are a Canadian investor who is trying to calculate the present value of a 5 million EUR cash inflow that will occur one year in the future. The spot….

. What is the present value of Mamma Mia’s 4 million PLN inflow computed by first discounting the cash flow at the appropriate PLN discount rate of 10% and then converting the result into CAD?

Mamma Mia Enterprises, a Canadian manufacturer of children’s toys, has made a sale in Poland and is expecting a 4 million PLN cash inflow in one year. The current spot….