Question
Texas Instruments, a U.S. based exporter, makes a sales to its customer in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of
Texas Instruments, a U.S. based exporter, makes a sales to its customer in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the sales are net 90 days, and the U.S. firm wants to cover this account receivables with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days later is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure on its account receivables?
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