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What is the probability that hedging will be more costly

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Question - Lorre Co. needs 200,000 Canadian dollars (C$) in 90 days and is trying to determine whether to hedge this position. Lorre estimate the value of C$ will be $0.56 with probability 25%, $0.568 with probability 20%, $0.576 with probability 25%, and $0.589 with probability 20%. The 90-day forward rate of the Canadian dollar is $.585, and the current spot rate of the Canadian dollar is $.56. If Lorre implements a forward hedge, what is the probability that hedging will be more costly to the firm than not hedging?

Reference no: EM132516808

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