Problem: Joo Ltd, a South African exporter, sells car parts to the value of €150 000 (Euro dollars) on 1 July 2013 to a company in Italy. Payment is made to Joo Ltd on 1 August 2013. The following information is available:
|
Price in €
|
Exchange rate
|
Price in R
|
|
I July 2013
|
€150 000
|
€1 = R14.25
|
R2 137 500
|
|
1 August 2013
|
€150 000
|
Unknown
|
Unknown
|
The forward Rand to € rate is trading at a Rand discount of 20% per annum.
Required:
1. Joo wants to take out forward cover. Calculate the forward rate and the value of the transaction as at 1 August 2013. Round to four decimal places.
2. Describe the effect on the transaction if on 1 August 2013 the R/€ rate is € 1 = 14.70 and Joo never entered into any forward cover contract.