Assume that Blue Mountain Co. negotiated a forward contract to buy 60,000 EUR in 90 days. The spot rate today is EUR 1 = AUD 1.427. The 90-day forward rate of EUR shows a 1% forward discount.On the day when the forward contract was delivered, the spot rate of the EUR was AUD 1.418.What was the real cost of hedging the EUR payables for this firm?

Selected Answer:

A.AUD -316.20 and the company is better off to hedge

B.AUD -396.20 and the company is better off to hedge

C.AUD 396.20 and the company is better off not to hedge

D.AUD 316.20 and the company is better off not to hedge

Ans: A