Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today’s spot rate. The current and forward spot rates are as follows:

Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today’s spot rate. The current and forward spot rates are as follows:

                                US dollar/British pound    British pound to US dollar

Spot                              1.5110                              0.5128

30-day forward           1.5540                              0.5056                                   

90-day forward           1.5460                              0.5075

180-day forward         1.5400                              0.5088

On the same day, Y agrees to purchase 11,500 more bags in 3 months at the same price of 500,000 British pounds.

a.      What is the cost of the bags in US dollars, if purchased at today’s spot rate ?

b.     What is the cost in dollars of the second 11,500 order if payment is made in 90 days and the spot rate at the time equals today’s 90-day forward rate ?

c.      If the exchange rate is 0.55 British pounds per dollar in 90 days, how much will Y have to pay (in dollars) for the bags ?

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