With regard to hedging and forecasting, a Eurozone firm is expecting a receivable of $1 million in six months. Right now at the market the forward rate of six months for the dollar is $1.2 to a euro. Staff presents two forecast: $1.11 and $1.05. Suppose it is known also that the future spot rate in the six months happens to be $1.1. Which of the forecasts should be taken by the firm and why?

With regard to hedging and forecasting, a Eurozone firm is expecting a receivable of $1 million in six months. Right now at the market the forward rate of six months for the dollar is $1.2 to a euro. Staff presents two forecast: $1.11 and $1.05. Suppose it is known also that the future spot rate in the six months happens to be $1.1. Which of the forecasts should be taken by the firm and why?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

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