Question: please do this exercise in proper way not only solution Threotical also! Max Planck Institute in Germany bought an advanced computer system from Celestica of

please do this exercise in proper way not only solution Threotical

please do this exercise in proper way not only solution Threotical also!

Max Planck Institute in Germany bought an advanced computer system from Celestica of Toronto on credit and was invoiced CAD$10 million payable in six months. Currently, the six-month forward exchange rate is $1.50/ and the foreign exchange adviser for Max Planck predicts that the spot rate is likely to be $1.42/ in six months. a. What is the expected gain/loss from the forward hedge? b. If you were the financial manager of Max Planck, would you recommend hedging this CAD$ payable? Why or why not? C. Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not

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