Caribou River. Caribou River, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign currency denominated cash flows must utilize the following mandatory forward cover formula:

Caribou expects to receive multiple payments in Danish kroner over the next year. DKr3,000,000 is due in 90 days; DKr2,000,000 is due in 180 days; and DKr1,000,000 is due in one year. Using the following spot and forward exchange rates, what would be the amount of forward cover required by company policy for each period?

Transcribed Image Text:

Mandatory Forward Cover 0-90 days 91-180 days 180 days Paying the points forward 75% 60% 50% Receiving the points forward 100% 90% 50%