Fml forecast for the spot rate six months

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Reference no: EM132062743

FML Company in the U.S. has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 2,500,000. The purchase was made in June with payment in euro due six months later in December. Assume that in December, the axchange rate turns out to be as the company anticipated. If so, then the money market hedge turns out to be ____ than the unhedged position by ______.

The spot exchange rate is $1.40/euro

The six month forward rate is $1.38/euro

FML's weighted avg cost of capital is 11%

The Euro zone borrowing rate is 9%

The Euro zone lending rate is 7%

The US borrowing rate is 8%

The US lending rate is 6%

December call option and put option for euro 625,000; strike price $1.42, premium 1.5%

FML forecast for the spot rate six months from now is $1.43/euro.

Reference no: EM132062743

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