Question
Lorre Co. needs 200,000 Canadian dollars (C$) in 10 days and is trying to determine whether to hedge this position. Lorre estimates the value of
Lorre Co. needs 200,000 Canadian dollars (C$) in 10 days and is trying to determine whether to hedge this position. Lorre estimates the value of C$ will be $0.565 with a probability of 15%, $0.569 with a probability of 25%, $0.573 with a probability of 35%, and $0.580 with a probability of 25%. The 90-day forward rate of the Canadian dollar is $.572, and the current spot rate of the Canadian dollar is $.568. If Lorre implements a forward hedge, what is the probability that hedging will be less costly to the firm than not hedging? (Please fill the blank with the number before %.)
In the previous question of Lorre Co., Lorre will choose to implement the forward hedge.
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