Suppose that a U.S. firm imports

Offered Price: $ 9.00 Posted on: 08/17/2015 01:06 PM Due on: 09/16/2015
Question # 00093582 Subject Finance Topic Finance Tutorials: 1
Question Purchase it

Suppose that a U.S. firm imports €1,000,000 of goods from a French firm, and needs to pay the full amount to the French firm in 6 months. Assume that the six-month forward rate is available for this U.S firm at the rates of $1.20/€ Bid and $1.25/€ Ask prices.

a. Describe the forward hedge to cover the €1,000,000 payables. When you answer this question, you must clearly state which currency you sell/buy at what price. Explain why this strategy is called “hedging”.

b. Suppose that the spot rate in 6 months will be $1.25/€ Bid and $1.30/€ Ask prices. Would it be better off with the above hedging strategy? Explain why or why not.

Tutorials for this Question
  1. Suppose that a U.S. firm imports

    Available for: $ 9.00 Posted on: 08/17/2015 01:06 PM
    Tutorial # 00087979 Puchased By: 0
    Tutorial Preview
    fxrwxrd xxxx xs xxxxxxxxx fxr thxs x S fxrm xx thx xxxxx xx $1 xxxxxx Bxd xnd xx 25/€ xsk xxxxxx x xxxxxxxx xxx fxrwxrd xxxxx…
    Attachments
    soln-new.zip (216.76 KB)
Loading...