Celine Co. will need €500,000 in 90 days to pay for German imports. Today's 90-day forward rate of the euro is $1.07. The spot rate of the euro in 90 days is forecasted to be $1.02. Based on this information, the expected value of the real cost of hedging payables is $____.

Question

Quizplus · Accepted Answer

The expected value of the real cost of hedging payables is $25,000. This is calculated as follows:Expected value = (Forward rate - Spot rate) * Amount of payable= (1.07 - 1.02) * 500,000= 0.05 * 500,000= $25,000

Celine Co Will Need €500,000 in 90 Days to Pay for for German