American Airlines hedges a £2.5 million receivable by selling pounds forward. If the spot rate is...
American Airlines hedges a £2.5 million receivable by selling pounds forward. If the spot
rate is $1.742/£ and the 90-day forward rate is $1.7158/£, what is American's actual true
cost of hedging if the spot rate at the end of 90-days is $1.73/£?
Homework Answers
Amount received from hedging as per the forward rate = 2,500,000* 1.7158 =
| $4,289,500 |
Amount that would have been received otherwise = 2500,000* 1.73 =
|
$4325000 |
True cost of hedging = 4325,000 - 4289500 = $35,500
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American Airlines hedges a £2.5 million receivable by selling
pounds forward. If the spot
rate is...
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