What is the cost of the invoice in dollars

Reference no: EM131959924

Question: You are concerned about your transaction exposure on a recent purchase from an exporter in Germany. The invoice, just received, is for 950,000 euros payable in 60 days, which will be about mid-September. The current exchange rate is $1.10 per euro, and you fear that the dollar will depreciate against the euro due to the relatively low interest rates currently prevailing in the United States. The following forward rate is $1.12.

A. What is the cost of the invoice in dollars at the current spot rate?

B. If a forward contract is purchased, what will be the cost of the invoice in dollars at the forward rate?

C. What are the advantages and disadvantages of the hedging of the transaction with a forward contract?

Reference no: EM131959924

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