MrGyal buys and sells regularly with customers worldwide. Its home currency is the dollar. The company expects to receive Euros 1.6 million in 6 months’ time from a customer abroad. Exchange rates at the moment in the home country of MrGyal are as follows: Exchange rate Euro Per dollar Spot 0.9431-0.9456 Six-month forward 0.9360- 0.9394 Twelve-month forward 0.9368-0.9406 Required: a) Calculate the rate of forward premium of the euro on the 12-month forward exchange rate both for buying and selling rates. b) Assuming that a forward contract is the only hedging tool available in the home country of MrGyal, calculate the dollar receipts of the Euros1.6 million receivable from the foreign customer under a hedge condition. c) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on MrGyal hedging decision
MrGyal buys and sells regularly with customers worldwide. Its home currency is the dollar. The company expects to receive Euros 1.6 million in 6 months’ time from a customer abroad.
Exchange rates at the moment in the home country of MrGyal are as follows:
Exchange rate Euro Per dollar
Spot 0.9431-0.9456
Six-month forward 0.9360- 0.9394
Twelve-month forward 0.9368-0.9406
Required:
a) Calculate the rate of forward premium of the euro on the 12-month forward exchange rate both for buying and selling rates.
b) Assuming that a forward contract is the only hedging tool available in the home country of MrGyal, calculate the dollar receipts of the Euros1.6 million receivable from the foreign customer under a hedge condition.
c) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on MrGyal hedging decision
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