ЁЯУв Too many exams? DonтАЩt know which one suits you best? Book Your Free Expert ЁЯСЙ call Now!

    Question

    A company based in the United States is expecting to

    receive a payment of 10 million euros in next two months. The company is concerned about the fall in the value of euros and is thinking of entering into a forward contract to hedge the position. What will be the value of 10 million euros in US dollars, if the company hedges the position of exchange rate risk with a forward contract of 1.5 USD/EURO
    A 10 million USD Correct Answer Incorrect Answer
    B 10 million Euro Correct Answer Incorrect Answer
    C 15 million USD Correct Answer Incorrect Answer
    D CanтАЩt say Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    As the company has hedged its currency exchange rate risk by entering into a forward contract at a future date (two months), the value of the amount it will receive will be = 10 million EURO * 1.5 (USD/EURO) = 15 million USD.

    Practice Next
    More Alternate Sources of Finance Questions

    Relevant for Exams:

    ask-question