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A Canadian company with operations in Germany expects to purchase 20 million euros worth of raw m...

A Canadian company with operations in Germany expects to purchase 20 million euros worth of raw materials in three months. The company is considering using a three month forward contract on 20 million euros to mitigate exchange rate risk. The forward rate is C$1.25/euro. Assume that the spot rate at expiration is C$1.30/euro. Find the company's profit/loss (in Canadian dollars) from their forward contract at expiration. Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.

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Answer #1

As the company will pay in euros it is worried that euro might appreciate hence the company will go long Euro or short Canadian dollar

Profit=20*10^6*(1.30-1.25)=1000,000 Canadian dollars

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