Topic: Foreign exchange rates

(a) What do you understand by Option Forward Contract?                                                                                                                                (b) From the following scenarios, calculate the appropriate rate for your customer, by specifically choosing the correct Option Rate applicable in each circumstance:                                                                                                                                                                           i. Your customer wishes to take out an Option Contract on 1 March for the period 1 March to 1 April, to buy US $30,000 to pay for goods imported from the USA. Your bank’s rates are as follows: 1 March Spot USD/GHS 11.3450 11.3540 One month forward 0.0520 0.0545 cedis dis.                                                                                                                                                                                              ii. To manage the risk of its Foreign Exchange, your customer came to arrange for Forward Exchange Contract for export proceeds of NGN 7.8 million due within the next two months. Your customer wishes to take out an Option Contract on 1 March for the period 1 April to 1 May to sell the Foreign Currency to your bank. Your quoted rates are as follows: 1 March Spot GHC/NGN 68.0110 68.0125 One month forward 0.0120 0.0145 naira dis Two months’ forward 0.0165 0.0195-naira dis.                                    iii. The Import Bill of your customer falls due within the next three months. The customer wishes to take out an Option Contract on 1 March to pay the Swiss Franc 25,000 anytime between 1 May and 1 June. Rates are as follows: 1 March Spot CHF/GHS 12.8215 12.8265 Two months’ forward 0.0865 0.0890 cedis dis Three months’ forward 0.0910 0.0945 cedis dis [