Determining the future value in dollars

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The US firm, Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €12.8million payable in six months. Currently, the six-month forward exchange rate is $1.24 = 1€.

a. Is Cray worried about the euro appreciating or depreciating? Explain

b. What will be the future value in dollars if Cray hedges 100% with a forward hedge?

c. If in six months, the spot rate turns out to be $1.19 = 1€, would Cray be happy that it had used the forward hedge?

d. How much better (or worse) off would Cray have been without the hedge?

Reference no: EM133074157

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