Cray Research sold a supercomputer to the Planck Institute in Germany on credit and invoiced 10 million payable in 6 months. Currently, the six-month forward exchange rate is $1.10/ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.05/ in 6 months.

a. What is the expected gain/loss from a forward hedge?

b. Would you recommend hedging this euro receivable as a financial manager? Why or why not?

c. Suppose the foreign exchange adviser predicts the future spot rate will be same as the forward exchange rate quoted today. Would you recommend hedging? Why or why not?

d. Now Suppose the future spot exchange rate is forecast to be $1.17/. Would you recommend hedging? Why or why not?