On 30 November, a UK exporter sells goods worth £10 million to a French importer on three months’ credit. The customer is billed in euros, for which the spot rate versus sterling is €1.6 vs. £1. The three-month forward rate is

€1.62 per £1.

(a) What is the amount invoiced?

(b) If the spot rate is €1.7 vs. £1 at the settlement date, what is the exporter’s gain or loss, assuming it does not hedge?

(c) If the spot rate is €1.5 vs. £1 at the settlement date, what is the exporter’s gain or loss, assuming it does not hedge?

(d) If the exporter takes forward cover, what is the cost of the hedge

(i) compared to the current spot rate?

(ii) compared to case (b)?

(iii) compared to case (c)?