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Manufacture wine goblets

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You manufacture wine goblets. In mid-June, you receive and order for 10,000 goblets from Europe. Payment of €400,000 is due in mid-December. You expect the €uro to rise from its present rate of $1=€1.5, to a rate of $1=€1.4 by December. You can borrow €uros at 6% per annum and dollars at 15% per annum (assume that the rate at which you borrow is same as the rate you would receive if you invested in a bank account). What should you do if?

(a) Scenario 1: the current 180-day forward rate is $1 = €1.35

(b) Scenario 2: the current 180-day forward rate is $1 = €1.45

Reference no: EM131412100

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