XXX is a TTT company that distributes electronic components in xxx imported from the YYY. Its main supplier, AMERICAN TECH has made a shipment of components amounting 1,200,000 USD to be paid within three months. XXX Chief Financial Officer fears that USD can move against their interests, so he decides to inquire about the possibility of hedging EURUSD exchange rate risk.

1) Considering the following market information, which will be EURUSD 3 months forward rate? EURUSD spot rate: 1.3350 USD 3 months interest rate: 1.25% EUR 3 months interest rate: 1.75%

2) What is the risk for XXX, an appreciation or a depreciation of USD?

3) If within 3 months EURUSD is trading at 1.1820, how much will have saved the company for hedging the commercial operation?.