Question
Super Hero Corporation based in the US sold a fleet of their latest Hover Flying Suits to the Ministry of Defense in London on credit
- Super Hero Corporation based in the US sold a fleet of their latest Hover Flying Suits to the Ministry of Defense in London on credit for 45,000,000 payable in 9 months.
Nine-month forward exchange rate: F9 = $ 1.6933 /
Fx Advisor estimated spot rate in nine months: ST = $ 1.4585 /
- What is the expected gain/loss from forward hedging?
- If you were the financial manager of Super Hero, Inc., would you recommend hedging this pound receivable? Why or why not?
- Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not?
(d) Suppose now that the advisor forecasts the future spot exchange rate to be $ 1.7276 / . Would you recommend hedging? Why or why not?
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Corporate Finance Investment And Advisory Applications
Authors: Jesse McDougall, Patrick Boyle
1st Edition
1530116597, 9781530116591
