Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer: In $ per $ Real 0.4200 2.3810 1 m. forward 0.4210 2.3753 3 m. forward 0.4350 2.2989 6 m. forward 0.4115 2.4301 Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation) Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position. Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position? If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter17: Multinational Financial Management

Section: Chapter Questions

Problem 3DQ: Some of the websites show graphs indicating how one currency has done relative to another currency....

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Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer:

In $ per $

Real 0.4200 2.3810

1 m. forward 0.4210 2.3753

3 m. forward 0.4350 2.2989

6 m. forward 0.4115 2.4301

Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation)
Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position.
Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position?
If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?

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