chapter  8
6 Pages

Currency Loans and Deposits

The spot purchase of the kronas fixes the rate at which the payment will be made. However, if the company has to borrow dollars to buy the kronas spot, there will be the additional interest cost of servicing the dollar loan. The interest rate differential between the kronas deposit receipts and the dollar loan should equate with the premium or discount to the spot rate (the forward points) for a forward contract, had such a contract been obtainable.