Pitney Bowes Inc imported new products from France and has payables. Use the fol
ID: 2614659 • Letter: P
Question
Pitney Bowes Inc imported new products from France and has payables. Use the following information for Pitney Bowes Inc to calculate the dollar cost of a forward contract to Euro 1,011,889.70 of payables due in one-year. Assume that the one-year interest rates are 7% and 3% in the U.S. and France respectively. Further, the spot rate and one-year forward rate for Euro are $1.18590 and $1.24520.
Select one:
a. $1,260,005.06
b. $1,372,145.51
c. $1,234,930.96
d. none of the answers is correct
e. $1,247,405.01
Explanation / Answer
The payables = Euro 1,011,889.70
The one year forward rate for euro = $1.2452
The dollar cost of a forward contract to euro payables due in one year
= Euro 1,011,889.70 * $1.24520
= $1,260,005.06
Ans is option a