Suppose that a company based in the United States will receive a payment of €10000000 in three months. The company is worried that the euro will deprecate and is contemplating using a forward contract to hedge the risk. 

Compute the following:

The value of the €10000000 in U.S dollars at maturity given that the company hedges the exchange rate risk with a forward contract at 1.25 $/€. 

The value of the €10000000 in U.S dollars at maturity given that the company did not hedge the exchange rate risk and the spot rate at maturity is 1.20 $/€.

Answer rating: 100% (QA)

SOLUTION a If the company hedges the exchange rate risk with a forward contract at 125 ... View the full answer