Your U.S. based MNC has a factory in Brazil. You will need to purchase an intermediate part on June 1st in Brazil, at a cost of 1 million Brazilian Real. The exchange rate in the spot market is $1 to 4.8 Real. The exchange rate in the futures market is currently 1 Real to $0.19 for December delivery, and the exchange rate in December turns out to be 1 Real to $0.175. If you hedge the full 1 million Real in the currency futures market, how much is your gain or loss in December (you will convert your Real back to dollars then)? O Gain of $15,000 O Loss of $33,333 O Loss of $18,333 O Gain of $19,000
Your U.S. based MNC has a factory in Brazil. You will need to purchase an intermediate part on June 1st in Brazil, at a cost of 1 million Brazilian Real. The exchange rate in the spot market is $1 to 4.8 Real. The exchange rate in the futures market is currently 1 Real to $0.19 for December delivery, and the exchange rate in December turns out to be 1 Real to $0.175. If you hedge the full 1 million Real in the currency futures market, how much is your gain or loss in December (you will convert your Real back to dollars then)? O Gain of $15,000 O Loss of $33,333 O Loss of $18,333 O Gain of $19,000
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter31: Open-Economy Macroeconomics: Basic Concepts
Section: Chapter Questions
Problem 4PA
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![Your U.S. based MNC has a factory in Brazil. You will need to purchase an intermediate part on
June 1st in Brazil, at a cost of 1 million Brazilian Real.
The exchange rate in the spot market is $1 to 4.8 Real. The exchange rate in the futures market
is currently 1 Real to $0.19 for December delivery, and the exchange rate in December turns out
to be 1 Real to $0.175.
If you hedge the full 1 million Real in the currency futures market, how much is your gain or loss
in December (you will convert your Real back to dollars then)?
O Gain of $15,000
O Loss of $33,333
O Loss of $18,333
O Gain of $19,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1a9cd080-8b08-46b3-a4b8-d912788bff6c%2F1cd9e289-2100-418e-8723-500e238edb7a%2F7af49tn_processed.png&w=3840&q=75)
Transcribed Image Text:Your U.S. based MNC has a factory in Brazil. You will need to purchase an intermediate part on
June 1st in Brazil, at a cost of 1 million Brazilian Real.
The exchange rate in the spot market is $1 to 4.8 Real. The exchange rate in the futures market
is currently 1 Real to $0.19 for December delivery, and the exchange rate in December turns out
to be 1 Real to $0.175.
If you hedge the full 1 million Real in the currency futures market, how much is your gain or loss
in December (you will convert your Real back to dollars then)?
O Gain of $15,000
O Loss of $33,333
O Loss of $18,333
O Gain of $19,000
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