Question: One basic example. At moment 0, available data are as follows: Spot rate: 1 USD = 0.8 EUR or 1 EUR = 1.25 USD 6m

One basic example. At moment 0, available data are as follows: Spot rate: 1 USD = 0.8 EUR or 1 EUR = 1.25 USD 6m forward rate:1 USD = 0.8 EUR or 1 EUR = 1.25 USD On the other hand assume you have exported products at moment 0. The bill (USD 1 mil. is to be paid in 6 months. Use the forward contract in order to hedge the exposure to the exchange risk. Analyse all the cash flows for 2 scenarios of spot Exchange rates in 6 months: (i) 1 USD = 0.7 EUR and (ii) 1 USD = 0.9 EUR. Do the same if you have imported products at moment 0 (Bill of USD 1 mill) 0

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