A French company exporting to the USA expects ($1) million from various customers in 30 days time.
Question:
A French company exporting to the USA expects \($1\) million from various customers in 30 days’ time. The company’s Treasurer seeks to eliminate the resulting exposure to changes in the US\($euro\) exchange rate. There are at least two possibilities. The first is to sell the dollars in the forward exchange market at \($0.8817\)/€. The second is to borrow the dollars immediately at 178% (divide by 12 for the 30-day rate) and convert them to euros at the current spot rate \($0.8829/\)€. The corresponding one-month euro rate is %. Which of the two methods of hedging the exposure has the least cost?
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