A company enters into a forward contract with a bank to sell
Question and Solution
A company enters into a forward contract with a bank to sell a foreign currency for K1 at time T1. The exchange rate at
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A company enters into a forward contract with a bank to sell a foreign currency for K1 at time T1. The exchange rate at time T1 proves to be S1 (> K1). The company asks the bank if it can roll the contract forward until time T2 (> T1) rather than settle at time T1. The bank agrees to a new delivery price, K2. Explain how K2 should be calculated.
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