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Expansys Inc exports 100% of products outside of its currency area, 100% of which in a...

Expansys Inc exports 100% of products outside of its currency area, 100% of which in a foreign currency (USD). The company produces €53 m. annual sales and hedges its currency risk on a quarterly basis. The EUR/USD spot rate is 1.09 (1.09 USD per 1 EUR) and three-month interest rates are 0.25% and 0.55% in EUR and USD, respectively. Find:

a. The quarterly risk exposure (in EUR and USD)

b. The 3-month forward exchange rate

c. The forward hedging strategy (contract specs)

d. The optimal choice between two forward contracts offered by Bank A (0.4% commission fee and 1.10 forward price) and Bank B (0.10% commission fee and 1.105 forward price)

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jeff jeffy answered 2 years ago
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