Cray Research (a U.S firm) purchased a super computer from the Max Planck Institute in Germany on credit and invoiced €10 ,000,000 payable in six months. Currently, the six-month forward exchange rate is $1.295/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.252/€ in six months.
(a) What is the expected gain/loss from the forward hedging? (measured in $, and round your answer to zero decimal, e.g., $56,699).
| The US firm has Euro 10000000 payable in 6 months. | ||
| $ outflow in 6 months if hedged @ $1.295/Euro = 10000000*1.295 | ||
| = $ 12950000 | ||
| $ outflow in 6 months at predicted spot rate $1.252/Euro = 10000000 * 1.252 | ||
| = $ 12520000 | ||
| Therefore, expected loss = $12950000-$12520000 | ||
| = $430000 |
Cray Research (a U.S firm) purchased a super computer from the Max Planck Institute in Germany...
Cray Research (a U.S firm) purchased a super computer from the Max Planck Institute in Germany on credit and invoiced €10 ,000,000 payable in six months. Currently, the six-month forward exchange rate is $1.295/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.252/€ in six months. (a) What is the expected gain/loss from the forward hedging? (measured in $, and round your answer to zero decimal, e.g., $56,699).
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