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sertanlavr [38]
2 years ago
11

Your company expects to receive CAD 1,200,000 in 90 days. The 90 day forward rate for CAD is $0.80 and the current spot rate is

$0.75. If you use a forward hedge, estimate the cost of hedging the receivable if, 90 days later, the spot rate for CAD 90 days later turns out to be $0.82.
a. $50,000
b. $50,000
c. $75,000
d. $75,000
Business
1 answer:
Masteriza [31]2 years ago
4 0

Answer:

Cost of hedging = $24,000

Explanation:

cost of hedging = 1,200,000 * ($0.80 - $0.82) = 1,200,000 * $0.02 = -$24,000

Since the actual forward rate was higher than th eexpected forward rte, the coampny lost money by hedging the operation. The cost of hedging the operation was $24,000.

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