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vova2212 [387]
3 years ago
13

Celine Co. will need €500,000 in 90 days to pay for German imports. Today's 90-day forward rate of the euro is $1.07. There is a

40 percent chance that the spot rate of the euro in 90 days will be $1.02, and a 60 percent chance that the spot rate of the euro in 90 days will be $1.09. Based on this information, the expected value of the real cost of hedging payables is $____. A. 25,000 B. -1,000 C. 4,000 D. -35,000
Business
1 answer:
harkovskaia [24]3 years ago
7 0

Answer:

$1,000

Explanation:

The computation of the expected value of the real cost of hedging payable is shown below:-

Real cost of hedging 1 = (€500,000 × $1.07 × (90 ÷ 360)) - (€500,000 × $1.02 × (90 ÷ 360))  

= $133,750 - $127,500

= $6,250

Real cost of hedging 2 = (€500,000 × $1.07 × (90 ÷ 360)) - (€500,000 × $1.09 × (90 ÷ 360))

= $133,750 - $136,250

= -$2,500

Expected value of the real cost of hedging payable = (Real cost of hedging 1 × Spot rate Given Percentage) + (Real cost of hedging 2 × Given percentage)

= ($6,250 × 0.40) + (-$2,500 × 0.60)

= $2,500 - $1,500

= $1,000

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8 0
2 years ago
When economists say that the Federal Reserve Banks are central banks, it means that multiple choice 1 the banks' policies are co
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2 years ago
Licensee mike was owed a commission from seller jane. jane has refused to make payment. what recourse does licensee mike have?
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5 0
2 years ago
Sweetpea Corporation sold a tiller that it used in its landscaping business. The tiller cost $5,000 and Sweetpea had taken $2,00
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Explanation:

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3 years ago
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I hope my answer helps you.

8 0
3 years ago
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