
136 INTERNATIONAL FINANCIAL MANAGEMENT
after one year. But the amount he will receive in US dollar terms after one year depends on the
future spot rate. In order to avoid uncertainty with regard to the future spot rate, the investor
may choose to enter a one-year forward contract. So, his cash flows in US dollars will depend
on the forward rate. Table 4.3 shows the cash flows of the investor at some alternative forward
rates.
As evident from Table 4.3, as long as the forward rate is less than 62.00, what the inves-
tor will get in US dollar proceeds will be more than what he would get by investing in the
United States itself. At the forward rate ...