Amount of dollars for phoenix than for tucson

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Reference no: EM131042647

Tucson will receive more cash flows. The 1-year and 2-year forward rates today are equal to today's spot rate. Thus, it hedges receivables at the same exchange rate as today's spot rate. Phoenix also hedges the receivables 1 year from now at that same exchange rate. But 1 year from now, it will hedge the receivables in the following year. In 1 year, the spot rate will be lower, so the 1-year forward rate at that time will be lower than today's forward rate. Thus, the receivables in 2 years will convert to a smaller amount of dollars for Phoenix than for Tucson.

Reference no: EM131042647

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