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Suppose that it is July 14, 2020, and ImportCo, a company based in the United States, knows that it will have to pay 10 million

  1. Suppose that it is July 14, 2020, and ImportCo, a company based in the United States, knows that it will have to pay 10 million on October 14, 2020, for goods it has purchased from a British supplier. ImportCo could hedge its foreign exchange risk by buying pounds (GBP) from the financial institution in the three-month forward market at 2. What is the effect of this hedge?

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