Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in
Posted: Wed Apr 06, 2022 9:08 am
Cray Research sold a supercomputer to the Max Planck Institute
in Germany on credit and invoiced €10 million payable in six
months. Currently, the six-month forward exchange rate is $1.10/€
and the foreign exchange adviser for Cray Research predicts that
the spot rate is likely to be $1.05/€ in six months.
a. What is the expected gain/loss from a forward hedge?
b. If you were the financial manager of Cray Research, would you
recommend hedging this euro receivable? Why or why not?
c. Suppose the foreign exchange adviser predicts that the future
spot rate will be the same as the forward exchange rate quoted
today. Would you recommend hedging in this case? Why or why
not?
d. Suppose now that the future spot exchange rate is forecast to
be $1.17/€. Would you recommend hedging? Why or why not?
in Germany on credit and invoiced €10 million payable in six
months. Currently, the six-month forward exchange rate is $1.10/€
and the foreign exchange adviser for Cray Research predicts that
the spot rate is likely to be $1.05/€ in six months.
a. What is the expected gain/loss from a forward hedge?
b. If you were the financial manager of Cray Research, would you
recommend hedging this euro receivable? Why or why not?
c. Suppose the foreign exchange adviser predicts that the future
spot rate will be the same as the forward exchange rate quoted
today. Would you recommend hedging in this case? Why or why
not?
d. Suppose now that the future spot exchange rate is forecast to
be $1.17/€. Would you recommend hedging? Why or why not?