A U.S. company, Cary Research, sold a super computer to the Max Planck Institute in Germany on credit and invoiced 10 million payable in six months. Currently, the sixmonth forward exchange rate is $1.10/ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/ in six months.

(a) What is the expected gain/loss from the forward hedging?

(b) Suppose now that the future spot exchange rate is forecast to be $1.17/. Would you recommend hedging? Why or why not?