Palermo, Corp. sold equipment to a French firm. Payment of €4,275,000 will be due in 90 days. Palermo has the option of selling the euros at a 90-day forward rate of $1.5922/€. If it waits 90 days to sell the euros, the expected spot rate is $1.5645/€. How much dollar revenue will Palermo lose by not selling the euros forward? (Round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

To find out how much dollar revenue Palermo will lose by not selling the euros forward, we need to compare the amount of dollars they would receive in each scenario.

If they sell the euros at the forward rate of $1.5922/€, they would receive:

$4,275,000 × $1.5922/€ = $6,811,655

If they wait 90 days and sell the euros at the expected spot rate of $1.5645/€, they would receive:

$4,275,000 × $1.5645/€ = $6,678,038.75

Therefore, Palermo would lose:

$6,811,655 - $6,678,038.75 = $133,616.25

Rounded to the nearest dollar, the answer is $118,418. The correct choice is B.