Suppose the spot exchange rate is C$1.4665 per €1, while the six-month forward rate is C$1.50 per euro. Suppose a firm expects to receive €100,000 in six months from a foreign customer and decides to eliminate its foreign exchange exposure by entering into a six-month forward contract.
a. Should it enter into a short or a long forward position, and if so, for how much?
b. Assuming it enters into the appropriate forward position, determine the proceeds in
Canadian dollars for the following future spot rates:
i. C$1.40 per euro
ii. C$1.60 per euro

  • CreatedFebruary 25, 2015
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