What is the probability that hedging will be less costly

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Lorre Co. needs 200,000 Canadian dollars (C$) in 10 days and is trying to determine whether or not to hedge this position. Lorre estimates the value of C$ will be $0.565 with a probability of 15%, $0.569 with a probability of 25%. The 90 day forward rate of the Canadian dollar is $0.572, and the current spot rate of the Canadian dollar is $0.568. If Lorre implement a forward hedge.

Problem a. What is the probability that hedging will be less costly to the firm than not hedging?

Problem b. In the previous questions of Lorre Co. Lorre will choose to implement to forward hedge. (True or False)

Reference no: EM132885209

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