What is the calculated profit or losses with the hedge for each month? 

Should one continue to hedge? 

 

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Empirical evidence indicates that the Forward market for foreign currencies is Efficient. You conduct business regularly with a company in Florence Italy and have been inclined to hedge in the Forward market. An Intern has just brought in hedging data for last quarter's Euro denominated receivables. You generally receive between 6-8 million Euros each month. Spot value Month F value on Month Beginning Beginning for Month End F7/31 € 7/1 $1.18, Spot € 7/1 $1.12, Spot € 8/1 = $1.19, Spot € 9/1 = $1.18, F8/31 €8/1 $1.15, F9/1 €9/1 $1.20, Spot value Month End 2.) Make the case for not hedging. Spot € 7/31 = $1.19 Spot € 8/31 = $1.17 Spot € 9/30 = $1.22 1.) Make the case for continuing to employ the Forward market. Empirical evidence indicates that the Forward market for foreign currencies is Efficient. You conduct business regularly with a company in Florence Italy and have been inclined to hedge in the Forward market. An Intern has just brought in hedging data for last quarter's Euro denominated receivables. You generally receive between 6-8 million Euros each month. Spot value Month F value on Month Beginning Beginning for Month End F7/31 € 7/1 $1.18, Spot € 7/1 $1.12, Spot € 8/1 = $1.19, Spot € 9/1 = $1.18, F8/31 €8/1 $1.15, F9/1 €9/1 $1.20, Spot value Month End 2.) Make the case for not hedging. Spot € 7/31 = $1.19 Spot € 8/31 = $1.17 Spot € 9/30 = $1.22 1.) Make the case for continuing to employ the Forward market.

Answer rating: 100% (QA)

To determine the profit or losses with the hedge for each month we need to compare the actual spot rate at the end of each month with the forward rate ... View the full answer