Caribou River, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if
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Caribou River, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign currency-denominated cash flows must utilize the following mandatory forward contract cover formula:
Caribou River's Manadatory Forward Cover | 0-90 days | 91-180 days | > 180 days | |||
Paying the points forward | 75% | 60% | 50% | |||
Receiving the points forward | 100% | 90% | 50% |
Spot rate, DKr/C$ | 4.681 | |
3-month forward rate, DKr/C$ | 4.702 | |
6-month forward rate, DKr/C$ | 4.721 | |
12-month forward rate, DKr/C$ | 4.75 |
Caribou expects to receive multiple payments in Danish kroner over the next year. DKr 3,000,000 is due in 90 days; DKr 2,000,000 is due in 180 days; and DKr 1,000,000 is due in one year. Using the following spot and forward exchange rates, what would be the total amount of forward cover required by company policy?
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Related Book For
Multinational Business Finance
ISBN: 978-0133879872
14th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
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