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The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You are...

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You are selling €1,000 forward for $. How much in $ are you receiving in three months? If the spot exchange rate is $1.60/€ in three months, how much is the gain or loss from this forward hedge?

Solutions

Expert Solution

Forward rate = $1.50/€

We are receiving 1.50 * 1,000 = $1,500 in three months

The spot exchange rate in three months is $1.60/€

We are in a loss because we agreed to sell € for 1.50 but the exchange rate has increased to $1.60€

Loss = (1.60 - 1.50) * 1,000

Loss = 0.10 * 1,000

Loss = $100

jeff jeffy answered 2 years ago
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