Case Studies

A. D. P. Edwards

Chapter 20 in The Exporter’s & Importer’s Handbook on Foreign Currencies, 1990, pp 88-101 from Palgrave Macmillan

Abstract: Abstract Figure 31 provides an excellent example of how the forward market works in a commercial way. A British chemical manufacturer had quoted a price of $772 per ton to a Malaysian buyer for a type of fertiliser. Two weeks later one of the company’s salesmen was in Malaysia in the hope of closing the sale. He was told, however, that a competitor was quoting a price of $704 per ton, a reduction of 8.8 per cent and so he rang his head office to enquire if he could meet it. If they were to get the order it would entail three shipments and consequently three payments at 6, 8 and 10 months. At the current spot rate the contract would produce a price of £449 per ton and their minimum price was £420 per ton. They enquired from their bank what the forward rates would be for delivery of dollars at the required intervals of 6, 8 and 10 months at the reduced price of $704 and were given rates which would produce £422, £426 and £432 per ton respectively.

Keywords: Interest Rate; Foreign Currency; Forward Rate; Spot Rate; Swiss Franc (search for similar items in EconPapers)
Date: 1990
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DOI: 10.1007/978-1-349-11852-6_21

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