Question
On December 15, Luna company, a company based in Chile sells peppers to a company in Italy and expects to receive 1 million euro on
On December 15, Luna company, a company based in Chile sells peppers to a company in Italy and expects to receive 1 million euro on March 15. The currency used in Chile is the US dollar. On December 15, Luna hedges the receivable with a forward contract with a delivery date of March 15.
On December 15, the following are quotes for the euro.
|
| Bid | Ask |
| Spot Rate | $1.07 | $1.08 |
| Forward Rate | $1.11 | $1.12 |
The forward rate is for a forward contract with a March 15 delivery date.
On March 15, the following are quotes for the euro.
|
| Bid | Ask |
| Spot Rate | $1.12 | $1.13 |
| Forward Rate | $1.12 | $1.13 |
The forward rate is for a forward contract with a March 15 delivery date.
What is Luna's net cash flow in dollars on December 15? On March 15?
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Financial Management Core Concepts
Authors: Raymond Brooks
4th Edition
134730417, 134730410, 978-0134730417
