Question
1. On June 1 Brackenridge, an American firm, enters into a transaction to purchase three earth moving machines from a German firm, for which it
1.On June 1 Brackenridge, an American firm, enters into a transaction to purchase three earth moving machines from a German firm, for which it would pay 1,220,000 on September 1.Brackenridge faces the following exchange rates (/$):
Spot1.4195 1.4201
30-day forward1.4199 1.4216
90-day forward1.4154 1.4179
180-day forward1.4089 1.4123
You face two alternatives.
a. If the company decides not to hedge, and spot rates on September 1 are (/$) 1.4215-52, how many dollars would it end up paying for the machines?
Present your detailed calculations and explain your reasoning.
b. If, instead, the company decided on June 1 to hedge this transaction, how many dollars would it end up paying for the machines?
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