Today the XYZ Corporation shipped goods value at 1 million Euros, to a customer

Question

Today the XYZ Corporation shipped goods value at 1 million Euros, to a customer in Belgium. Payment is due in 90 days, and the Belgium firm will make the payment in euros. Today spot rate is euros1 / $ 1.25. The 90 day forward rate is euros1 / $1.22.
A) How many dollars would XYZ receive if payment were made today?

B) If XYZ sells 1 million Euros forward for 90 days, how much is it assured to receive 90 days from now?

C) If XYZ had not hedged in the forward market and the spot rate 90 days from now is
Euro 1 / $1.24, how much would XYZ receive in (U.S.dollars)?

D) If the U.S. dollar were to weaken in the 90 days and XYZ did not hedge, would it benefit or lose?

Explanation / Answer

A). XYZ will receive 1.25 million dollars if payments were made today. B.) It will receive 1.22 million dollars 90 days from now. C.) It will receive 1.24 million dollars 90 days from now. D.) If the U.S. dollar were to weaken in the 90 days and XYZ did not hedge, it would benefit .

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