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Unformatted text preview: $0.9830
to the dealer at a price of A$1
(i.e. for the customer to receive
A$1). The dealer will charge 16
(buy) US$0.9830 to supply A$1. • Forward exchange rates are used primarily to
reduce exchange-rate risk, by locking in an exchange
rate for a future transaction.
– They will usually differ from the spot rate, due to the
market’s expectations about the future direction of rates,
etc. Commonly used for time periods of 1, 3 or 6 months.
– Forward contracts for periods exceeding 1 year are
unusual (only about 3% of all forward contracts).
– Forward exchange rates are often referenced via a
difference between the spot rate and the forward rate. This
difference is referred to as the ‘forward margin’ . . .
difference fm = f - s
– The difference (i.e. the forward margin) can be either + or The
depending on the size of s and f (& see interest rate
parity, Example of the forward margin method
of quoting a forward...
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- Fall '13