Question: Problem 2: Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced EUR 10 million payable in six months.

Problem 2: Cray Research sold a supercomputer to the Max Planck

Problem 2: Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced EUR 10 million payable in six months. Currently, the six-month forward exchange rate is USD 1.10 per EUR, and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be USD 1.05 per EUR in six months. (a) What is the expected gain/loss from a forward hedge? (b) If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not? (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? Why or why not

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