A firm has a receivable of €5,482,129. It hedged this exposure with a forward participation contract with a guaranteed rate of $1.117/C and participation rate of 43%. How much will the firm receive (in dollars) if the spot price is $1.327/€ at the time of payment?

A firm has a receivable of €5,482,129. It hedged this exposure with a forward participation contract with a guaranteed rate of $1.117/C and participation rate of 43%. How much will the firm receive (in dollars) if the spot price is $1.327/€ at the time of payment?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 6ST

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

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A firm has a receivable of €5,482,129. It hedged this exposure with a forward participation contract with a guaranteed rate of $1.117/€ and
participation rate of 43%. How much will the firm receive (in dollars) if the spot price is $1.327/€ at the time of payment?

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