Gce Model Questions Vol1 2019 Commerce Question 33

Practice objective / multiple choice question 33 from the 2019 Gce Model Questions Vol1 Commerce examination.

Gce Model Questions Vol1 2019 Commerce Objective / Multiple Choice Medium Difficulty
Question 33 GCE_MODEL_QUESTIONS_VOL1 • 2019 • COMMERCE • objective

A Nigerian exporter expects to receive €200,000 in 90 days. The current spot rate is \(\text{₦}460\) per euro and the 90‑day forward rate is \(\text{₦}465\) per euro. Converting at spot incurs a transaction cost of 2% of the amount received in naira. Should the exporter lock in the forward contract or wait to convert at spot? Calculate the net naira amount received under each option and state the difference.

Answer Options

A. Lock in the forward contract; forward gives ₦92,700,000, spot after cost gives ₦90,160,000, a difference of ₦2,540,000 in favour of the forward.
B. Wait and convert at spot; forward gives ₦93,000,000, spot after cost gives ₦90,160,000, a difference of ₦2,840,000 against the forward.
C. Lock in the forward contract; forward gives ₦93,000,000, spot after cost gives ₦91,000,000, a difference of ₦2,000,000 in favour of the forward.
Correct Answer D. Lock in the forward contract; forward gives ₦93,000,000, spot after cost gives ₦90,160,000, a difference of ₦2,840,000 in favour of the forward.
Correct Answer
D
Correct Option:
Lock in the forward contract; forward gives ₦93,000,000, spot after cost gives ₦90,160,000, a difference of ₦2,840,000 in favour of the forward.

About This Question

This is Gce Model Questions Vol1 2019 Commerce Question 33. It is one of the objective questions from the 2019 Gce Model Questions Vol1 Commerce examination.

Difficulty level: Medium .

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