Assessment D: Chapter $8$ i

$1$

$1$ points

$02$:$12$:$39$

Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced $10\mathrm{.}40$ million payable in six months. Currently, the six$-$month forward exchange rate is $$1\mathrm{.}12$ per euro and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $$1\mathrm{.}07$ per euro in six months.

Required:

a$.$ What is the expected gain$/$loss from a forward hedge?

Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions.

b$.$ If you were the financial manager of Cray Research, would you recommend hedging this euro receivable?

c$.$ Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case?

d$.$ Suppose now that the future spot exchange rate is forecast to be $$1\mathrm{.}19$ per euro. Would you recommend hedging?

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