Imagine that you are importing pasta from Italy and reselling it in the United States. Your largest customer has ordered 10 You place the order with your supplier today, but you won't pay until the goods arrive in 60 days. Your selling price is $6 per case. Your cost is 4.48 euros per case, and the exchange rate is such that it takes 0.80 euro to buy $1. However, the exchange rate in 60 days probably will be different, so your profit will depend on what the exchange rate in the future turns out to be. You enter into a forward exchange agreement to lock in an exchange rate of 0.82 euro per S1. What will your profit be if you hedge? O S4,000 O Zero O 55,366 O S7.294

Imagine that you are importing pasta from Italy and reselling it in the United States. Your largest customer has ordered 10 You place the order with your supplier today, but you won't pay until the goods arrive in 60 days. Your selling price is $6 per case. Your cost is 4.48 euros per case, and the exchange rate is such that it takes 0.80 euro to buy $1. However, the exchange rate in 60 days probably will be different, so your profit will depend on what the exchange rate in the future turns out to be. You enter into a forward exchange agreement to lock in an exchange rate of 0.82 euro per S1. What will your profit be if you hedge? O S4,000 O Zero O 55,366 O S7.294

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 3P

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