Hedging: Carrington Industries sold equipment to a Mexican firm. Payment of 41,275,000 pesos will be due in 30 days. Carrington has the option of selling the pesos at a 30-day forward rate of $0.09739/peso. If it waits 30 days to sell the pesos, the expected spot rate is $0.09596/peso. How much additional dollar revenue will Carrington get by selling forward the pesos? Round to the nearest dollar.

Question

Quizplus · Accepted Answer

To determine the additional dollar revenue, we need to calculate the difference between the forward rate and the expected spot rate, and multiply that by the amount of pesos to be received.

Difference in rates: $0.09739 - $0.09596 = $0.00143

Additional dollar revenue: 41,275,000 pesos x $0.00143/peso = $59,023

Therefore, the best choice is C.

Hedging: Carrington Industries Sold Equipment to a Mexican Firm