If the bank does hedge with the forward contract

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Reference no: EM131555234

You are the Vice President of Finance for Exploratory Resources, headquartered in Houston, Texas. In January 2010, your firm’s Canadian subsidiary obtained a six-month loan of 120,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. $.8997/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 2010 contract (face value = C$120,000 per contract) was quoted at U.S. $.8934/Canadian dollar.

If the bank does hedge with the forward contract, what is the maximum amount it can lose? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Reference no: EM131555234

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