Executing the forward contract

Assignment Help Financial Management

Reference no: EM131488062

Rubbermaid must pay a Euro-denominated payable of €100,000 in 120 days. The current spot rate of the euro is $1.2750 and the 120 forward rate quoted today is $1.3550. Sherwin is worried that the euro will appreciate over the next 120 days, increasing the dollar cost of their euro receivable. To hedge this risk, they enter into a forward contract with their bank to “buy euros forward” at the forward rate of $1.3550. Assume that 120 days later, Sherwin executes the contract to buy €100,000 at the contracted forward rate of $1.3550. Assume also that the spot rate at that time is $1.3200.

(a) How many dollars did Sherwin have to pay for the €100,000 by executing the forward contract?

(b) How many dollars would Sherwin have had to pay for the euros if they had not hedged with a forward contract but instead purchased euros in the spot market when the payable was due?

(c) Now assume that the spot rate at the time the payable is due is $1.3255. How much did Sherwin save or lose by purchasing their euros through the forward contract rather than on the spot market?

Reference no: EM131488062

Questions Cloud

Should the company purchase the technology : Calculate the price she will receive from each bond if she sells on 15 May, 2017 at the new yield, immediately after receiving the interest payments due that day.

Gain should be entered as a positive number : Genetic Insights Co. purchases an asset for $18,864. Calculate gain or loss on disposal. Gain should be entered as a positive number.

Explain negative evidence for the choice that you rejected : It is important that you justify your choice. You should give reasons for your choice AND explain the negative evidence for the choice that you rejected.

Billion increase in government purchases : How do I find the answers to these questions: 1) A $100 billion increase in government purchases would:

Executing the forward contract : How many dollars did Sherwin have to pay for the €100,000 by executing the forward contract?

Discuss the price-book ratio : (Market-value ratios) Garret Industries has a price/earnings ratio of 16.29X.

What is your favorite childhood memory : Interview a young person (5 to 8 years old) and an older adult (65 years or older). Ask them the same question: "What is your favorite childhood memory?"

Market actually paying per share for growth opportunities : How much is the market actually paying per share for growth opportunities?

Change in demand and a change in quantity demanded : What is the difference between a change in demand and a change in quantity demanded? Supply and quantity supplied? Give an example of what could cause a change.

User Account

All Pages