Long position in the forward contract

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Your company has ordered some equipment from a European manufacturer for a price of (500,000. The payment terms are that you will pay the amount in Euros on Dec 31. The current (spot) rice of each Euro is $0.80 and the current forward price in a currency forward contract with the underlying asset being Euros is $0.987. In order to hedge the price risk of Euros, what position will you take in the forward contract i.e. will take a short or a long position in the forward contract. If on December 31, the spot price of each Euro turns out to be $0.997, how much will the payment end up costing you in U.S. dollars? Currency forward contracts are settled with physical delivery only of the foreign currency.

Reference no: EM133060070

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