Question 8

Your London-based firm expects to pay 50,000,000 in 6 months to a Japanese supplier. To hedge the exchange rate risk, your firm enters into a forward agreement at a forward rate of 1.00 = $0.0083. Suppose you complete the following table to show the gain or loss realized on the forward given a potential future spot exchange rate 1.00 = $0.0081. What should be written for X, Y, and Z?Please note the proper way to communicate a gain versus a loss...For example, note that Y = ($5) would mean a$5 loss, and Y =$5 would mean a$5 gain.

Spot exchange rate 1.00 = $0.0081

Value of converted currencyGain/(Loss) on forwardNet realized value

XYZ

a.X = $405,000Y = ($10,000)Z = $415,000

b.X = $405,000Y = $10,000Z = $415,000

c.X = $415,000Y = ($10,000)Z = $405,000

d.X = $415,000Y = $10,000Z = $405,000