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

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

If you were the financial manager of Cray Research, would you recommend hedging the euro receivable? Why or why not? Explain?

Suppose the foreign exchange advisor predits that the future spot rate will be the same as the forward rate quoted today. Would you recomend hedging in this case? Why or why not? Explain?

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