A U.S. company will receive C$1,000,000 in 30 days. The current spot rate is .79

Question

A U.S. company will receive C$1,000,000 in 30 days. The current spot rate is .79 and the 30-day forward rate in the Canadian dollar is $.81. If you use a forward hedge, you will:? Pay $810,000 in 30 days ?receive $790,000 today ?pay $750,000 in 30 days. ?receive $810,000 today. none of the options listed A U.S. company will receive C$1,000,000 in 30 days. The current spot rate is .79 and the 30-day forward rate in the Canadian dollar is $.81. If you use a forward hedge, you will:? Pay $810,000 in 30 days ?receive $790,000 today ?pay $750,000 in 30 days. ?receive $810,000 today. none of the options listed A U.S. company will receive C$1,000,000 in 30 days. The current spot rate is .79 and the 30-day forward rate in the Canadian dollar is $.81. If you use a forward hedge, you will:? Pay $810,000 in 30 days ?receive $790,000 today ?pay $750,000 in 30 days. ?receive $810,000 today. none of the options listed

Explanation / Answer

IF COMPANY USES FORWARD HEDGE, IT WILL ENTER TODAY AT FORWARD RATE INTO CONTRACT AND PROMISES TO PAY AFTER 30 DAYS

AMOUNT RECEIVED = C$1000000 X 0.81 = $810000 IN 30 DAYS

SO YOU WILL PAY COUNTERPARTY C$1000000 AND IN RETURN RECEIVE $810000 IN 30 DAYS

SO CONTRACT IS ENTERED TODAY BUT AMOUNT WILL BE RECEIVED IN 30 DAYS.

"NONE OF THE OPTIONS LISTED" IS CORRECT ANSWER

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