Empirical evidence indicates that the Forward market for foreign currencies is Efficient. You conduct business regularly...

Transcribed Image Text:

Empirical evidence indicates that the Forward market for foreign currencies is Efficient. You conduct business regularly with a company in Florence Italy and have been inclined to hedge in the Forward market. A UCLA Intern has just brought in hedging data for last quarter's Euro denominated receivables. You generally receive between 6-8 million Euros each month. Spot value Month Beginning Spot € 7/1 = $1.12, Spot € 8/1 = $1.19, Spot € 9/1 = $1.18, F value on Month Beginning for Month End F7/31 € 7/1 $1.18, F8/31 €8/1 = $1.15, F9/1 €9/1 = $1.20, Spot value Month End Spot € 7/31 = $1.19 Spot € 8/31 - $1.17 Spot € 9/30 = $1.22 1. Make the case for continuing to employ the Forward market. 2. Make the case for not hedging. Empirical evidence indicates that the Forward market for foreign currencies is Efficient. You conduct business regularly with a company in Florence Italy and have been inclined to hedge in the Forward market. A UCLA Intern has just brought in hedging data for last quarter's Euro denominated receivables. You generally receive between 6-8 million Euros each month. Spot value Month Beginning Spot € 7/1 = $1.12, Spot € 8/1 = $1.19, Spot € 9/1 = $1.18, F value on Month Beginning for Month End F7/31 € 7/1 $1.18, F8/31 €8/1 = $1.15, F9/1 €9/1 = $1.20, Spot value Month End Spot € 7/31 = $1.19 Spot € 8/31 - $1.17 Spot € 9/30 = $1.22 1. Make the case for continuing to employ the Forward market. 2. Make the case for not hedging.

Answer rating: 100% (QA)

1 Case for continuing to employ the Forward market The Forward market allows you to lock in a specific exchange rate for future transactions providing certainty and protection against adverse currency ... View the full answer