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GATE, Inc. manufactures automobile engines in the United States. ABC, Inc. sells 200 of its 8 cylinder Hoste model engines to a company in Canada.
GATE, Inc. manufactures automobile engines in the United States. ABC, Inc. sells 200 of its 8 cylinder Hoste model engines to a company in Canada. The total price for these engines is C$60,000. GATE, Inc. will deliver the engines today and receive payment in 3 months from the Canadian company. When payment is received Gates Auto will convert the C$60,000 into U.S. dollars. The spot rate is $0.7865/C$ and if the spot rate in 3 months is $0.7622/CS. - What is the value of the C$ in the spot market? - What is the value of the C$ in the forward market? - How much will ABC, Inc. gain or lose due to exchange rate movements on this transaction if it does not perform any hedges
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