Suppose Montreal Import Company has to pay a foreign supplier 400,000 euros in one year and decides to hedge their position by entering into a forward contract.What is the appropriate forward position?
A)400,000 short euro forward contract
B)200,000 euro forward contract
C)400,000 long euro forward contract
D)not enough information provided to identify an answer

Question

Quizplus · Accepted Answer

To hedge their position of paying 400,000 euros in one year, Montreal Import Company should enter into a long forward contract for 400,000 euros. This will ensure that they can purchase the required 400,000 euros at the agreed upon forward rate, regardless of any fluctuations in the spot rate at the time of payment.

Suppose Montreal Import Company Has to Pay a Foreign Supplier