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Chamberlain Canadian Imports has agreed to purchase 15,000 cases of Canadian beer for 4 million Canadian dollars at today's spot rate. The firm's financial manager, James Churchill, has noted the following current spot and forward rates:
US dollar/Canadian dollar Canadian dollar/US dollar
Spot 0.6930 1.4430
30-day fwd 0.6935 1.4420
90-day fwd 0.6944 1.4401
180-day fwd 0.6957 1.4374
On the same day, Churchill agrees to purchase 15,00 more cases of beer in 3 months at the same price of 4 million Canadian dollars.
Question 1: What is the price of the beer, in US dollars, if it is purchased at today's spot rate?
Question 2: What is the cost, in US dollars, of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today's rate?
Question 3: If the exchange rate for the Canadian dollar is 1.20 to $1 in 90 days, how much will Churchill have to pay for the beer (in US dollars)?