10 Cost of hedging receivables. Assume that Bentley Ltd negotiated a forward contract to sell 100 000...

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10 Cost of hedging receivables. Assume that Bentley Ltd negotiated a forward contract to sell 100 000 Canadian dollars in one year. The one-year forward rate on the Canadian dollar was £0.55. This strategy was designed to hedge receivables in Canadian dollars.

On the day the Canadian dollars were to be sold in accordance with the forward contract, the spot rate of the Canadian dollar was £0.53. What was the cost of hedging receivables for this UK firm compared with not hedging?

Repeat the question, except assume that the spot rate of the Canadian dollar was £0.60 on the day the Canadian dollars were to be sold in accordance with the forward contract. What was the cost of hedging receivables in this example compared with not hedging?

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Exploring Economics

ISBN: 9780324395464

4th Edition

Authors: Robert L. Sexton

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