Currency forward when St is not provided

CFA Level III Derivatives
#1

Example taken from the below source:

http://www.investopedia.com/terms/c/currencyforward.asp

How does a currency forward work as a hedging mechanism? Assume a Canadian export company is selling US$1 million worth of goods to a U.S. company and expects to receive the export proceeds a year from now. The exporter is concerned that the Canadian dollar may have strengthened from its current rate (of 1.0500) a year from now, which means that it would receive fewer Canadian dollars per US dollar. The Canadian exporter therefore enters into a forward contract to sell $1 million a year from now at the forward rate of US$1 = C$1.0655. If a year from now, the spot rate is US$1 = C$1.0300 – which means that the C$ has appreciated as the exporter had anticipated – by locking in the forward rate, the exporter has benefited to the tune of C$35,500 (by selling the US$1 million at C$1.0655, rather than at the spot rate of C$1.0300). On the other hand, if the spot rate a year from now is C$1.0800 (i.e. the C$ weakened contrary to the exporter’s expectations), the exporter has a notional loss of C$14,500.

Solution I have worked:

F0 = C$1.0655

And Ft is not given, Ft is assumed as C$1.0300.

The gain of C$35,500 is calculated by applying in the formulae

The above is short on the forward contract as he has to deliver the USD and receive the CAD

=-(Ft-F0)*NP

=-(1.0655-1.03)*1m = C$35,500

Can anyone please confirm that if Ft is not given then we can substitute the value for Ft with St

Thank you

#2

Please I beg some attention

#3

Hey, you don’t need to know the forward rate at time t (expiry of the forward). All you need to know is that the Canadian is expecting a payment in USD, so it is long USD. The offsetting position will be to go short USD, via the forward. Now, based on what the one-year forward rate is vs what the exporter expects the exchange rate (spot) to be in a year, the exporter will either hedge or not accordingly. It will take the $1 million payment it receives in a year from the American buyer, and then turn around and deliver those dollars to the counterparty of the forward, since he is short USD. He will then receive CAD (home currency) and at a predetermined rate (as per the forward he entered into a year prior).

Whatever the forward rate is when he receives the USD payment is irrelevant to the problem-so you don’t need to know it and def don’t assume any rates. Does that make sense?