You are the Vice President of Finance for Exploration Resources, based in Houston, Texas. In January 2010, his company's Canadian subsidiary obtained a six-month loan of C$130,000 from a Houston bank to finance the acquisition of a titanium mine in the province of Quebec. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was US$0.9005/Canadian dollar and Canadian currency was selling at a discount in the forward market. The June 2010 contract (face value = Cdn$130,000 per contract) was quoted at US$0.8950/Canadian dollar.

If the bank hedges with the forward contract, what is the maximum amount it can lose? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

	maximum loss

Answer rating: 100% (QA)

To calculate the maximum amount the bank can lose by hedging with the forward contract we need to co... View the full answer