Would you recommend hedging in this case

Assignment Help Finance Basics

Reference no: EM131114448

Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.10/€ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months.

a. What is the expected gain/loss from a forward hedge?

b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not?

c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not?

Reference no: EM131114448

Questions Cloud

What is negative goodwill : What is good will? What is negative goodwill?

Calculate the future dollar cost of meeting this sf : Calculate your expected dollar cost of buying SF5,000 if you choose to hedge by a call option on SF. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. At what future spot exchange rate wil..

Explain the process of a money market hedge : Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. Conduct a cash flow analysis of the money market hedge.

Prepare the entry to record the amortization : Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined.

Would you recommend hedging in this case : What is the expected gain/loss from a forward hedge? If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not? Suppose the foreign exchange adviser predicts that the future spot rate will be..

How should these costs be accounted for in 2010 : McNabb Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented,

Explain cross-hedging and discuss the factors determining : Explain cross-hedging and discuss the factors determining its effectiveness.

Columbia sportswear company acquired a trademark : Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products.

Explain contingent exposure and discuss the advantages : Explain contingent exposure and discuss the advantages of using currency options to manage this type of currency exposure.

User Account

All Pages