FINA417 Group

FINA417 Group - Case 7 As the Sports Exports Company...

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Case 7 As the Sports Exports Company exports footballs to the United Kingdom, it receives British pounds. The check (denominated in pounds) for last month's exports just arrived. Jim Logan (owner of the Sports Exports Company) normally deposits the check with his local bank and requests that the bank convert the check to pounds at the prevailing spot rate (assuming that he did not use a forward contract to hedge this payment). Jim's local bank provides foreign exchange services for many of its business customers who need to buy or sell widely traded currencies. However, Jim decided to check the quotations of the spot rate among other banks before converting the payment into dollars. 1. Do you think Jim will be able to find a bank that provides him with a more favorable spot rate than his local bank? Explain. The quoted spot rate for British pounds will typically be similar among banks at a given point in time, because locational arbitrage might be possible if there were significant differences. It is possible that some banks that rarely provide the foreign
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This note was uploaded on 08/29/2011 for the course FIN 417 taught by Professor Foo during the Spring '11 term at Waikato.

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FINA417 Group - Case 7 As the Sports Exports Company...

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