Problem $8\mathrm{.}1$

Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced $13\mathrm{.}60$

million payable in six months. Currently, the six$-$month forward exchange rate is $$1\mathrm{.}28$ per euro and the foreign

exchange adviser for Cray Research predicts that the spot rate is likely to be $$1\mathrm{.}23$ 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{.}35$ per euro. Would you recommend

hedging?