Sorry if this has been discussed before but i cant figure this out: Question no. 9: it says that Maple Leaf is long a forward contract on EUR 50 million at 1.63 CAD/EUR, expiring in six months. current spot rate is 1.64 CAD/EUR then how can the counter party to this transaction can have the credit risk…maple leaf is long on the forward contract so they want to buy 50 million euros…the forward rate is 1.63…if the current spot rate is 1.64 wont maple leaf have the credit risk because they have to pay higher in the spot market…
is there any info about interest rates of CAD and EUR?
I think you have to discount the quotes back to the present using the interest rates maratikus mentioned. The question was specifically made this way to be confusing.
interest rate in canada is 3.5% and europe is 4.5%…but how does the interest rate come into play… maple leaf is long a forward contract on euro 50 million…so it want to buy euro…the rate it has locked in with forward market is 1.63…if the rate in the spot market is 1.64…isnt maple leaf better off with the forward rate …and face the credit risk from the counterparty… geez…its confusing.
this was discussed (pretty effectively) this time last week if you fancy scrolling through the archive, I still need to get my head around it.
anyone else…