Question
A US company has exported goods worth Eur 100 million, receivable after 3 months, to a Germany based company. The forward rates are expressed as:
A US company has exported goods worth Eur 100 million, receivable after 3 months, to a Germany based company. The forward rates are expressed as: EUR-USD Spot 1.0973 1.0974 Three months Forward 75.5 76.0 a. Is the EUR quoting at discount or premium to the USD? What is the forward rate applicable at which the US company will enter into a forward contract? (5 Marks) b. Suppose USD is depreciating. Should the US exporter go for hedging the risk? If he hedges the risk with a forward contract and the actual spot rate after 3 months turns out to be the same as the currency spot rate, what is his notional profit/ loss?
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Financial Management Principles And Practice
Authors: Timothy Gallagher
7th Edition
0996095462, 978-0996095464
