Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced 10 million payable in six months Currently, the six month forward exchange rate is $1 10 and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1 05 in six month...

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Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced 10

Question:

Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward is $1.10/€ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months.
a. What is the expected gain/loss from a forward hedge?
b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not?
c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward quoted today. Would you recommend hedging in this case? Why or why not?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...